Amazon Spent More on Data Centers Last Quarter Than AWS Earned in Revenue. Should Investors Worry?
Key PointsAmazon’s cash capital spending reached about $53 billion in the second quarter, topping AWS’ $42 billion in revenue.
Amazon spent more on data centers in the latest quarter than its cloud computing subsidiary, AWS, earned in revenue, raising questions for investors. Amazon Web Services, the company's biggest profit driver, generated $42 billion in revenue and $16 billion in operating income during the second quarter, up 36% year over year. Meanwhile, Amazon's cash capital expenditures totaled nearly $53 billion, exceeding AWS's quarterly revenue by around $10 billion and outpacing operating income by more than three times.
Despite this, Amazon is investing heavily in AI and cloud capacity to meet a growing demand. The company's backlog of AWS revenue, valued at $496 billion, is increasing at a triple-digit rate, and management expects demand to continue growing. However, building for such demand takes time, as data centers and servers take several years to generate revenue.
Amazon's free cash flow will likely remain under pressure during this period as the company invests in infrastructure to support future demand. While this spending may raise concerns for investors, Amazon's long track record of profitability and experience in investing in technology for future growth suggest it is a solid AI stock to buy and hold.
Written by urgent.news from Motley Fool's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
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