Amazon Shares Soar as Cloud Revenue Growth Validates Big Bet on AI

Amazon's shares surged nearly 14% on Friday after the company posted its strongest cloud growth in over four years, indicating a fresh wave of demand that justifies its increased capital spending. The e-commerce and cloud titan saw its second-quarter cloud revenue jump by 37%, with AWS revenues exceeding estimates.

The solid cloud sales growth reinforced investor confidence in Amazon's massive AI bets, quashing concerns about the company trailing its Big Tech rivals in the AI race. This comes as a resounding sign to Wall Street that some of Big Tech's AI investments are already generating measurable returns.

However, there is growing unease among investors regarding the ever-increasing AI spend by Big Tech, set to exceed $730 billion this year. Amazon's results show it is earning the right to keep spending, unlike Meta and Google-parent Alphabet which saw their shares slump 7% despite strong growth in revenues.

Amazon's free cash flow swung sharply negative in the quarter, with the company burning $7.6 billion on a trailing 12-month basis, versus $18.2 billion in positive free cash flow a year earlier. Despite this, CEO Andy Jassy reassured investors that Amazon is only pouring money into serving demand that already exists.