Amazon Stock Surges on Jassy's $1 Trillion AWS Prediction
Amazon's stock surged after its strong second-quarter earnings report, with CEO Andy Jassy predicting that Amazon Web Services (AWS) could become a $1 trillion revenue business. This prediction likely carried more weight with investors since Jassy is not known for making bold predictions like Elon Musk.
AWS saw its strongest growth in nearly four and a half years, with revenue jumping 37% year over year to $42.2 billion. The company's AI and chip businesses now have more than $25 billion in revenue run rates, with the AI business growing by triple digits. Its backlog also grew by triple digits to $496 billion.
Operating income in the segment jumped 63% to $16.6 billion, with an operating margin of 39%. Jassy noted that margins could fluctuate but said the steady rise wasn't random.
The company's e-commerce operation continues to perform well, with North America sales jumping by 16% year over year to $116.2 billion and international sales rising 15% to $42.2 billion. Advertising remains a key driver, with ad revenue climbing 26% to $19.8 billion.
Amazon's revenue jumped by 20% year over year to $200.61 billion, easily topping the analyst consensus of $196.47 billion. Earnings per share (EPS) more than tripled to $2.78, but this included a large gain from Amazon's investment in Anthropic.
Jassy said AWS demand continues to outstrip capacity and will continue in 2027, with the demand for 2028 already striking. He noted that AWS should break even on its server and networking investments in two to three years, while servers have useful lives of five to six years and data centers have over 30-year useful lives.
Despite a slight revision downward of its third-quarter revenue projection, Amazon still trades at an attractive valuation with a forward price-to-earnings ratio of about 31 times 2026 analyst estimates. The company's e-commerce business is humming along, and AWS is gaining strong momentum, making the stock still look like a long-term buy.