AWS recorded its quickest progress in additional than 4 years through the second quarter, however Amazon stated it nonetheless lacked sufficient computing capability to satisfy buyer demand regardless of elevating its 2026 capital spending forecast to $220 billion.
AWS income rose 37% yr over yr to $42.2 billion within the quarter ended June 30. The consequence exceeded the 31.21% progress anticipated by analysts surveyed by LSEG and marked the cloud unit’s strongest efficiency in 18 quarters.
“AWS is booming proper now,” Amazon CEO Andy Jassy stated through the firm’s earnings name. AWS added greater than $4.6 billion in income from the earlier quarter, about 80% greater than its earlier largest quarterly enhance.
Amazon elevated its forecast for 2026 money capital expenditure from roughly $200 billion to $220 billion. Jassy stated the extra spending would nonetheless not present sufficient infrastructure to satisfy all of the demand Amazon anticipated through the yr.
“Even at that quantity, we’ll nonetheless not have sufficient capability to satisfy all the demand we now have in 2026,” Jassy stated. He anticipated the capability constraint to proceed in 2027.
The “lion’s share” of AWS computing capability deliberate for 2027 had already been reserved by prospects, Jassy stated, whereas some capability scheduled for 2028 had additionally been dedicated. AWS backlog reached $496 billion on the finish of the quarter, up from $364 billion three months earlier.
The reservations present Amazon with advance details about buyer necessities because it plans knowledge centres and computing infrastructure. The corporate didn’t establish the shoppers concerned or disclose how a lot capability would stay for organisations procuring assets nearer to deployment.
Buyer commitments lengthen past present capability
AWS presents merchandise that enable prospects to order specified computing assets prematurely. EC2 Capability Blocks present entry to some GPU-based cases for outlined durations, whereas On-Demand Capability Reservations safe chosen EC2 capability inside an Availability Zone.
These merchandise are separate from the longer-term buyer commitments that Amazon mentioned for 2027 and 2028. The corporate didn’t say whether or not these commitments would have an effect on on-demand availability, pricing, or allocation for smaller enterprise prospects.
Most of Amazon’s present AI capability is contracted for phrases of a minimum of 5 years, in response to Jassy. These commitments give the corporate customer-demand visibility earlier than it purchases gear, though Amazon didn’t disclose how the contracts are distributed throughout buyer teams.
Amazon’s disclosures verify that infrastructure availability is limiting the demand AWS can at present serve. They don’t set up that capability has turn out to be a extra vital aggressive issue than pricing throughout the broader cloud market.
Jassy stated Amazon begins spending on knowledge centres about two years earlier than the services open. The corporate subsequently incurs building and gear prices earlier than prospects can use the brand new capability and earlier than the services start producing income.
Increasing cloud capability requires websites, electrical energy connections, buildings, servers, and networking gear. The event timeline means a better capital expenditure price range doesn’t instantly translate into further AWS capability.
A US Division of Vitality advisory report stated grid-connection requests for hyperscale services requiring between 300 MW and 1,000 MW or extra can contain lead occasions of 1 to a few years. It additionally recognized constraints involving transformers, switchgear, transmission infrastructure, and different gear required to provide massive knowledge centres.
The Worldwide Vitality Company expects international electrical energy consumption from knowledge centres to double between 2025 and 2030, with electrical energy use by AI-focused services anticipated to triple. It additionally recognized energy gear, superior chips, and different element constraints as components limiting how rapidly new capability can enter service.
AI workloads additionally require greater than entry to accelerators. Massive coaching and inference clusters rely upon reminiscence, storage, cooling, energy distribution, and high-bandwidth networking.
Amazon stated software program and course of enhancements, customized chips, and internally developed community gear had been serving to it use server and community capability extra effectively. The corporate recorded $53.1 billion in money capital expenditure through the second quarter, primarily associated to AWS and generative AI.
Reminiscence and infrastructure prices enhance spending
Jassy stated increased reminiscence prices had been the principle cause Amazon elevated its 2026 capital expenditure forecast by roughly $20 billion. Amazon didn’t disclose how the upper costs would have an effect on the quantity of computing capability delivered by that spending.
Reminiscence is used all through AI servers. Excessive-bandwidth reminiscence provides knowledge to accelerators throughout coaching and inference, whereas typical server reminiscence helps the broader computing system.
Amazon didn’t specify whether or not the rise associated primarily to high-bandwidth reminiscence, typical server reminiscence, storage, or a mixture of these classes. It additionally didn’t present a breakdown of spending on processors, networking, storage, cooling, and electrical infrastructure.
Amazon stated its AI and semiconductor companies had every exceeded an annualised income run fee of $25 billion. AWS reached an annualised income run fee of $169 billion through the quarter.
Jassy stated AI adoption was additionally rising prospects’ consumption of core AWS companies. These embrace computing, storage, databases, and networking used to assist AI functions and their related knowledge.
AWS working revenue rose to $16.6 billion from $10.2 billion a yr earlier. The division recorded a 39% working margin through the quarter, alongside the 36.7% enhance in income.
Capital expenditure weighs on free money move
Amazon recorded a trailing 12-month free money move outflow of $7.6 billion, in contrast with an influx of $18.2 billion a yr earlier. Purchases of property and gear elevated by $66.1 billion over the identical interval, primarily reflecting AI funding.
Amazon’s trailing 12-month working money move rose 33% to $161.4 billion. The rise in property and gear purchases was nonetheless massive sufficient to maneuver free money move into detrimental territory.
The hole displays the timing of Amazon’s infrastructure programme. Knowledge centre building begins about two years earlier than opening, whereas servers and networking gear are usually bought a number of months earlier than they enter service.
Jassy stated Amazon has stronger visibility into buyer necessities earlier than buying servers and networking gear as a result of these belongings are put in nearer to deployment. He stated Amazon wouldn’t make these gear purchases if the corresponding buyer demand was absent.
Jassy stated knowledge centres can generate income for greater than 30 years with out requiring Amazon to repeat the preliminary building expenditure. Servers and networking gear function on shorter funding cycles.
On common, servers and networking gear take barely lower than three years to achieve break-even, Jassy stated. He added that the gear has a helpful lifetime of a minimum of 5 to 6 years, leaving one other two to a few years to generate free money move after the preliminary funding has been recovered.
(Photograph by Martin Woortman)
See additionally: Microsoft expands Azure AI with Databricks and Mistral
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