Amazon Stock Trades at Rare Discount as Andy Jassy Bets $220 Billion on AWS to Fuel Next Trillion-Dollar Leg

SEATTLE — Amazon.com Inc. has grown into one of the most valuable companies in the world under founder Jeff Bezos and his successor, Andy Jassy, and investors are now watching to see whether a sharply higher spending plan tied to artificial intelligence and cloud computing can push the company's value even further.

Bezos founded Amazon in 1994 and led the company through its May 1997 initial public offering, building it from a market capitalization of under $500 million into a $1.8 trillion company by the time he stepped down as chief executive on July 5, 2021. Jassy, who succeeded him, has overseen a roughly 50% increase in Amazon's market value since taking over, pushing the company's worth to about $2.7 trillion.

Before becoming CEO, Jassy helped build and run Amazon Web Services, the cloud-computing division that has since become the company's largest source of profit. AWS remains the leading cloud infrastructure provider globally, holding a 28% market share as of the second quarter of 2026, ahead of Microsoft's Azure at 20% and Alphabet's Google Cloud at 15%, with the remaining share split among a range of smaller competitors.

AWS's growth has accelerated sharply over the past year as demand for generative artificial intelligence services has surged. In its second-quarter results reported July 30, Amazon said AWS revenue rose 37% year-over-year to $42.2 billion, up from $30.9 billion a year earlier, marking the unit's fastest growth in 18 quarters and its fifth consecutive quarter of accelerating growth, according to Jassy. AWS operating income climbed 64% to $16.6 billion, with the division's operating margin expanding to 39.4% from 32.9% a year earlier. AWS accounted for roughly 60% of Amazon's total operating profit during the quarter.

AWS is now a $169 billion annualized revenue run rate business, which, for perspective, would place it 24th on the Fortune 500 list if it was a stand-alone company, Jassy told analysts on the earnings call. He also described the broader cloud business succinctly, saying AWS is booming. The unit's backlog of customer agreements representing future revenue grew to $496 billion, giving the company visibility into demand well beyond the current quarter.

Across all of Amazon's businesses, including its retail stores, advertising, Prime subscriptions, devices and cloud operations, net sales rose 20% year-over-year to $200.6 billion in the second quarter, while operating income climbed 43% to $27.5 billion. We're reporting $200.6 billion in revenue, up 20% year-over-year. Operating income was $27.5 billion, up 43% year-over-year. Q2 was another very strong quarter for Amazon, Jassy said.

That growth has come alongside a significant increase in spending. Amazon raised its full-year 2026 capital expenditure guidance to approximately $220 billion, up from a prior estimate of about $200 billion, with the company attributing the increase primarily to higher memory costs tied to building out AI and data center infrastructure. We now believe we will spend approximately $220 billion in cash CapEx in 2026. The higher cost of memory pushing this number up from our prior estimate of about $200 billion, Jassy said on the call. Capital expenditures during the second quarter alone reached $54.2 billion, compared with $32.1 billion in the same period a year earlier.

Even at that elevated level of spending, Jassy told investors the company still won't have enough capacity to satisfy the demand it's seeing. Even at that amount, we will still not have enough capacity to meet all the demand we have in 2026, he said, adding, I believe this dynamic will also be true in 2027, too. AWS is targeting a doubling of its power capacity by the end of 2027 compared with 2025 levels, underscoring the scale of the infrastructure buildout underway.

The heavy investment cycle has pressured some near-term financial metrics. Amazon's trailing 12-month free cash flow swung to a multibillion-dollar outflow as the company accelerated purchases of property and equipment, primarily to expand AI infrastructure. Despite that pressure, shares surged more than 10% in extended trading following the earnings release, as investors focused on AWS's accelerating growth rather than the near-term cash flow impact.

Much of that spending is directed toward AWS's data center footprint, networking equipment and computing hardware, including both Nvidia graphics processing units and Amazon's own in-house Trainium and Graviton chips. Both of those homegrown chip lines have individually surpassed a $25 billion annual revenue run rate, according to the company, as Amazon looks to reduce its reliance on external chip suppliers while building out AI infrastructure at scale. Amazon's Bedrock model marketplace, aimed primarily at enterprise customers, has also become a growing part of the company's broader AI product strategy.

Despite the scale Amazon has already achieved, its stock currently trades at what analysts describe as an unusually attractive valuation relative to its own history, a rarity for a company of its size and track record. The gap has emerged even as capital expenditures have climbed sharply, with some investors expressing concern about the near-term payoff of such a steep increase in spending. Given AWS's growth trajectory and dominant position in cloud infrastructure, however, the investment in data center capacity is widely viewed by market watchers as a calculated bet on sustained demand rather than a departure from the company's historically disciplined approach to capital allocation.

With AWS still expanding at its fastest pace in more than four years and demand for artificial intelligence infrastructure showing no signs of slowing, Jassy's strategy of funneling record sums into data centers and custom silicon is shaping up as the next major test of whether Amazon can replicate the kind of sustained profit growth that carried the company from a startup bookseller to a $2.7 trillion technology giant under his predecessor.

Source: https://www.ibtimes.com.au/amazon-220-billion-ai-spending-aws-growth-1875482