Wall Street’s Pursuit of Cloud Growth: AI Spending Reaches Record High

As Amazon prepares to release its quarterly earnings report, all eyes are on the tech giant’s AI spending and revenue figures. Analysts are expecting revenue to reach approximately $196.4 billion, a 17% increase from the previous year, with earnings projected at $1.82 per share.

One notable factor contributing to this growth is the timing of Prime Day, which took place in the second quarter this year, providing a boost to Amazon’s retail numbers compared to the same period last year. Additionally, Amazon Web Services (AWS) has been a significant driver of revenue growth, with a 28% increase in the previous quarter and an expected 31% growth for the current quarter.

To support its expanding AI capabilities, Amazon has announced a record $200 billion investment in capital expenditures this year, primarily focused on data centers, servers, and chips. This investment is driven by the demand from major AI companies such as OpenAI and Anthropic, who have committed billions of dollars to AWS for their AI needs.

CEO Andy Jassy emphasized the strategic nature of these investments, stating, “We’re not investing approximately $200 billion in capex in 2026 on a hunch.” However, the substantial capital expenditures have led to a decrease in free cash flow, reflecting the company’s commitment to expanding its infrastructure.

Despite Amazon’s strong performance, investors are closely monitoring the company’s spending patterns. Google’s parent company, Alphabet, recently raised its capital spending forecast, leading to a decline in its stock price. Microsoft is set to report its earnings shortly, adding to the scrutiny of tech companies’ financial strategies.

Amazon’s custom chip business, including Graviton, Trainium, and Nitro, has reached a $20 billion annual revenue run rate, positioning it as a key pillar alongside Marketplace, Prime, and AWS. The company is also reimagining its approach to AI model development, with a focus on cutting-edge frontier models expected to be unveiled at re:Invent later this year.

Recent organizational changes within Amazon’s AI division, including job cuts and the closure of its San Francisco AI site, reflect a shift towards prioritizing frontier model research. In parallel, AWS is investing in assisting other companies in deploying AI, with a $1 billion commitment aimed at embedding engineers with enterprise customers.

Stay tuned for live coverage of Amazon’s earnings report on Thursday afternoon with GeekWire.