Amazon Stock Surges 15% as AWS Growth Exceeds Expectations

Amazon's stock price surged by 15% last Friday after the company released its second-quarter results. The jump in stock value was largely due to the impressive growth of Amazon Web Services (AWS), which saw a revenue increase of 36.7% to $42.2 billion, the fastest growth in 18 quarters.

The accelerated AWS growth provided evidence that Amazon's massive AI investment cycle is already generating substantial cloud revenue and operating profit. The company's data-center expansion, previously seen as a cash-consuming endeavor, now appears to be producing meaningful returns.

AWS operating income reached $16.6 billion, while companywide revenue rose 20% to $200.6 billion and operating income increased 43% to $27.5 billion. Advertising revenue also climbed 26% to $19.8 billion, adding a high-margin business that does not carry the inventory and delivery expenses associated with Amazon's retail operations.

AWS backlog reached $496 billion and grew at a triple-digit rate year over year, representing contracted cloud business that Amazon has not yet recognized as revenue. The strong growth in AWS and advertising profits suggests that Amazon is modestly undervalued, with future returns depending on the company's ability to sustain its current pace of growth.