Amazon Ups Capex Budget to $220 Billion as AI Demand Soars
Amazon's second-quarter earnings had investors on edge due to its capital expenditure (capex) outlook, which came in at $220 billion for the full year. This is a $20 billion increase from the previously stated budget.
In an effort to build out new data centers and bring more AI capacity online, Amazon CEO Andy Jassy stated that the spending is required. He noted that data centers have useful lives of 30 years or more, and inside each facility, Amazon can cycle through five or six generations of servers.
The unit economics improve after the first generation because the initial capital outlay does not have to be repeated. However, in the near term, Amazon is building several data centers at the same time - ahead of the point at which these facilities can generate revenue. The result is elevated capex and pressure on free cash flow until new capacity is monetized.
Jassy made it clear that even with the revised $220 billion budget, Amazon still does not expect to have enough capacity to satisfy all of its AI demand in 2026. He anticipates the same bottleneck will persist into 2027 as enterprise customers remain early in the process of moving inference workloads into production.
The company's core profitability engine, Amazon Web Services (AWS), saw revenue reach $42.2 billion in the quarter, up 37% year over year. Meanwhile, operating income from AWS jumped 64% to $16.6 billion.