Amazon shares rally as cloud growth surges and spending outlook climbs

Investing.com - Amazon (NASDAQ: AMZN) beat Wall Street estimates for second-quarter revenue on Thursday, as accelerating growth in its cloud-computing business helped offset continued heavy spending on artificial intelligence, sending its shares rallying nearly 12% in pre-market trading on Friday.

The e-commerce giant lifted its spending forecast for the year to $220 billion, an uptick of $20 billion, as the group flagged the increased cost of memory chips.

Amazon continued to ramp up spending on AI infrastructure, with trailing 12-month capital expenditures rising to $173 billion, while the company said the sharp increase in property and equipment purchases primarily reflected investments in AI.

The company’s ramp-up in AI-related investments has threatened to weigh on free cash flow.

Investors have recently raised issue with whether such outlays will eventually translate into consistent profits. Those concerns were underlined by Amazon’s negative free cash of $7.6 billion, which analysts at Vital Knowledge suggested was illustrative of "the cash pressures facing hyperscalers as they race to stay ahead in the AI race."

Still, the investments have helped support expanding cloud capacity and AI services. Against that backdrop, CEO Andy Jassy told investors in a post-earnings call that the division, Amazon Web Services, could eventually generate a trillion dollars in annual revenue "in time."

Sales at AWS soared by 37% versus a year ago to $42.2 billion in the quarter ended June 30 -- the fastest rate of growth in 18 quarters.

Overall, group-wide revenue for the period stood at $200.6 billion, topping analysts’ estimates of $196.16 billion.

Earnings per share came in at $5.75, although the figure was not directly comparable with the consensus estimate because it included a large one-time gain from investments. Net income included $53.4 billion in non-operating pre-tax other income, primarily related to Amazon’s investment in AI start-up Anthropic.

For the third quarter, Amazon forecast revenue of $197 billion to $202 billion, below analysts’ consensus estimate of $203.9 billion. The company expects operating income of $22.5 billion to $26.5 billion, compared with $17.4 billion a year earlier.

"If you like MSFT’s print yesterday, you’re sure going to like this AMZN print," Bernstein analysts said.

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