Amazon shares surged more than 9% in after-hours trading on Thursday after the retail and artificial intelligence giant delivered second-quarter results propelled by its Amazon Web Services cloud division, which is growing at its fastest pace in over four years. The rally reinforced AWS's position as the largest cloud infrastructure provider globally, ahead of Microsoft Azure and Google Cloud, both of which have also reported surging AI-driven demand in recent quarters.

AWS reported $42.2 billion in Q2 revenue, up 37% from $30.9 billion a year earlier—marking the cloud unit's fastest growth in 18 quarters and what CEO Andy Jassy described as its fifth consecutive quarter of accelerating growth. The division added more than $4.6 billion in revenue quarter over quarter. AWS operating income reached $16.6 billion, a 64% increase from $10.2 billion a year ago, with operating margins expanding to 39.4% from 32.9% in the comparable prior-year period. The unit's backlog—customer agreements representing future revenue—climbed to $496 billion.

"AWS is now a $169 billion dollar annualized revenue run rate business, which, for perspective, would place it 24th on the Fortune 500 list if it was a standalone company," Jassy said during Thursday's earnings call.

Across all of Amazon's businesses—including stores, advertising, Prime, devices, and cloud—net sales rose 20% to $200.6 billion, compared with $167.7 billion a year earlier. Operating income climbed to $27.5 billion from $19.2 billion. Net income reached $62.6 billion, or $5.75 per diluted share, versus $18.2 billion, or $1.68 per share, in the year-ago quarter. However, the net-income figure includes $53.4 billion in non-operating income, primarily attributable to Amazon's investments in Anthropic, the AI startup founded by former OpenAI researchers in which Amazon has invested at least $8 billion.

Amazon's advertising segment, often described as an unsung hero of the company's portfolio, grew 26% year-over-year, an acceleration from 22% growth in the same period last year when the segment recorded $15.7 billion in revenue.

Free cash flow, a metric that has drawn investor concern as hyperscalers and cloud providers collectively commit more than $800 billion to data center and AI infrastructure buildouts, turned negative to $7.6 billion, compared with a positive inflow of $18.2 billion a year ago. The swing was driven by a $66.1 billion year-over-year increase in equipment purchases, which Amazon attributed to AI investments. The negative free cash flow reflects a broader pattern across the industry: Microsoft, Alphabet, and Meta have all sharply increased capital spending on AI data centers and chips, raising questions among analysts about how long it will take for these investments to generate proportional returns.

During the call, Jassy informed investors that Amazon now expects capital expenditures of $220 billion in 2026, raised from a prior estimate of $200 billion due to higher memory costs. Even at that elevated level, Jassy said Amazon will still not "have enough capacity to meet all the demand we have in 2026. And I believe this dynamic will also be true in 2027 too."

AWS, which Jassy said "is booming," underpins much of the company's broader growth. The cloud unit's acceleration has followed a steady trajectory: growth reached 20% in the third quarter of 2025 and accelerated each subsequent quarter to 37% in Q2. Over that same period, AWS operating margins expanded from 32.9% to 39.4% even as the company invested heavily in data center infrastructure. AWS property and equipment grew to $223 billion in Q1, up from $190 billion the prior quarter. Comparable Q2 figures had not yet been published.

Jassy attributed the growth acceleration to capacity additions and additional competitive factors. Customers, he said, are drawn to AWS because it offers "the broadest functionality across both cloud core and AI" along with "the strongest operational performance and security."

"As more and more companies are bringing their inference workloads to production, they want it to live near the rest of their workloads and data, and so much more of it lives in AWS than anywhere else," Jassy said.

Regarding Amazon's core cloud business, which has benefited from post-training reinforcement learning and agent tool usage, Jassy noted that 85% of global IT spending remains on-premises—meaning a substantial share of companies still operate their own hardware in their own facilities.

"That equation is going to flip in the next 10 to 20 years," he said, adding that AWS is "winning the lion's share" of enterprise cloud migration plans.

Customer adoption of Bedrock—Amazon's platform for accessing AI models from Anthropic, Meta, and OpenAI—showed strong performance, with customers spending more on the service in Q2 than in all prior quarters combined, according to an analyst note on Thursday. Jassy's position is that AWS and Amazon can "have a wildly successful business" without developing their own frontier model, because there will not be a single model "to rule the world."

"It's not just Anthropic; it's not just OpenAI," Jassy said. "You see increasingly more and more companies being interested in the open models as well, and we have all of them in Bedrock."

Separately, Jassy said AWS remains on pace to double its power capacity by the end of 2027 compared with 2025. The expansion underscores a mounting challenge for the entire hyperscale cloud industry: securing sufficient electricity and grid capacity to power AI data centers has become a critical bottleneck, with major providers increasingly investing in nuclear energy and long-term power purchase agreements to meet projected demand.