Amazon's Cloud Capacity Crunch: Can It Build Fast Enough to Justify the Bill?

Amazon's cloud division, AWS, is facing a massive demand for its services, outpacing the company's ability to build capacity. In response, Amazon has increased its capital expenditure budget to $220 billion, up from $200 billion, with most of it allocated to data centers and logistics infrastructure.

The reason behind this surge in spending is that customers are ordering cloud capacity faster than Amazon can physically build it. As a result, AWS's backlog swelled to nearly $496 billion by mid-year, while its annualized revenue run-rate of $169 billion would rank it 24th on the Fortune 500.

The growth doesn't come cheap, however, and Amazon is carrying a significant share of industry-wide leasing burden of roughly $1.09 trillion for future data center capacity. This has led to concerns about the company's debt load and uncertain monetization timeline, as seen in Oracle's recent credit rating cut to BBB-.

Despite these challenges, Amazon's stock has been on a tear, crossing the $3 trillion market capitalization threshold and reaching a record high of $287.20 before giving back some ground. The company's operating income rose 43% in the second quarter to $27.5 billion, supporting optimism among sell-side firms that remain 'Strong Buy' with a price target of $333.20.