Amazon Stock Surges on AI Demand Validation Amid Capital Expenditure Concerns

Amazon's (AMZN.US) stock price surged about 20% in two consecutive trading days after its second-quarter earnings report exceeded expectations. The accelerated growth in revenue from Amazon Web Services (AWS), particularly in AI and in-house chip divisions, validated the demand for AI.

The AWS segment posted a 37% year-over-year revenue growth to $42.2 billion, exceeding analysts' average estimate of $40.6 billion. This marks its fastest pace since the fourth quarter of 2021. Amazon CEO Andy Jassy noted that AWS is 'booming', with strong momentum in AI and chip divisions.

However, some market observers caution that while demand for AI has been validated, concerns emerge over capital expenditures and depreciation pressures. The company's heavy investment in AI products and infrastructure resulted in negative free cash flow by the end of the second quarter, with a net outflow of $7.6 billion over the past 12 months.

Amazon raised its 2026 capital expenditure forecast from $200 billion to $220 billion, with most spending directed toward the AI sector. Jassy stated that even at this level, Amazon still won't have sufficient capacity by 2026 to meet all demand, and the trend is expected to persist into 2027 and beyond.