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 improve.
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 the entire 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 information centres and computing infrastructure. The corporate didn’t determine the shoppers concerned or disclose how a lot capability would stay for organisations procuring sources nearer to deployment.
Buyer commitments prolong past present capability
AWS presents merchandise that enable prospects to order specified computing sources 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 at the very least 5 years, in line with Jassy. These commitments give the corporate customer-demand visibility earlier than it purchases tools, though Amazon didn’t disclose how the contracts are distributed throughout buyer teams.
Amazon’s disclosures affirm that infrastructure availability is limiting the demand AWS can at the moment serve. They don’t set up that capability has turn out to be a extra essential aggressive issue than pricing throughout the broader cloud market.
Jassy stated Amazon begins spending on information centres about two years earlier than the amenities open. The corporate due to this fact incurs development and tools prices earlier than prospects can use the brand new capability and earlier than the amenities start producing income.
Increasing cloud capability requires websites, electrical energy connections, buildings, servers, and networking tools. The event timeline means a better capital expenditure finances doesn’t instantly translate into further AWS capability.
A US Division of Vitality advisory report stated grid-connection requests for hyperscale amenities requiring between 300 MW and 1,000 MW or extra can contain lead instances of 1 to 3 years. It additionally recognized constraints involving transformers, switchgear, transmission infrastructure, and different tools required to produce giant information centres.
The Worldwide Vitality Company expects international electrical energy consumption from information centres to double between 2025 and 2030, with electrical energy use by AI-focused amenities anticipated to triple. It additionally recognized energy tools, superior chips, and different part constraints as components limiting how shortly new capability can enter service.
AI workloads additionally require greater than entry to accelerators. Massive coaching and inference clusters rely on reminiscence, storage, cooling, energy distribution, and high-bandwidth networking.
Amazon stated software program and course of enhancements, customized chips, and internally developed community tools 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 improve spending
Jassy stated increased reminiscence prices had been the primary purpose 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 information 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 mix 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 charge of $25 billion. AWS reached an annualised income run charge of $169 billion through the quarter.
Jassy stated AI adoption was additionally rising prospects’ consumption of core AWS providers. These embrace computing, storage, databases, and networking used to assist AI functions and their related information.
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% improve in income.
Capital expenditure weighs on free money circulate
Amazon recorded a trailing 12-month free money circulate outflow of $7.6 billion, in contrast with an influx of $18.2 billion a yr earlier. Purchases of property and tools elevated by $66.1 billion over the identical interval, primarily reflecting AI funding.
Amazon’s trailing 12-month working money circulate rose 33% to $161.4 billion. The rise in property and tools purchases was nonetheless giant sufficient to maneuver free money circulate into unfavourable territory.
The hole displays the timing of Amazon’s infrastructure programme. Information centre development begins about two years earlier than opening, whereas servers and networking tools are typically 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 tools as a result of these property are put in nearer to deployment. He stated Amazon wouldn’t make these tools purchases if the corresponding buyer demand was absent.
Jassy stated information centres can generate income for greater than 30 years with out requiring Amazon to repeat the preliminary development expenditure. Servers and networking tools function on shorter funding cycles.
On common, servers and networking tools take barely lower than three years to succeed in break-even, Jassy stated. He added that the tools has a helpful lifetime of at the very least 5 to 6 years, leaving one other two to 3 years to generate free money circulate after the preliminary funding has been recovered.
(Picture by Martin Woortman)
See additionally: Microsoft expands Azure AI with Databricks and Mistral
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