Amazon: AWS Growth Accelerates to 36.7% as Jassy Now Sees a Path to $1 Trillion in Cloud Revenue, Raises 2026 CapEx to $220 Billion on Memory Costs
Q2 2026 earnings call, July 30, 2026
Amazon delivered a quarter that reset the ceiling on how investors should think about AWS. Revenue hit $200.6 billion, up 20% year-over-year, with operating income climbing 43% to $27.5 billion. But the headline number was AWS growth of 36.7%, marking the fifth consecutive quarter of acceleration and the fastest pace in 18 quarters, a period when the cloud unit was less than half its current size. The segment added $4.6 billion in sequential revenue, roughly 80% more than its largest quarterly increase ever, and its backlog now stands at $496 billion, growing in triple digits year-over-year.
The scale of that backlog prompted CEO Andy Jassy to significantly upgrade his long-term framing of the business. "We long believed AWS could become a few hundred-billion-dollar revenue business and now believe it will be at least double that, and very possibly be a $1 trillion annual revenue business for us in time," Jassy said, a notable escalation from prior commentary. AWS is now running at a $169 billion annualized revenue rate, a figure Jassy noted would rank 24th in the Fortune 500 as a standalone company.
CapEx Raised to $220 Billion as Memory Costs Bite, But Demand Still Outstrips Supply
Amazon now expects to spend approximately $220 billion in cash capital expenditures in 2026, up from the roughly $200 billion guided earlier in the year. CFO Brian Olsavsky and Jassy attributed the increase specifically to higher memory chip costs, not incremental demand. Even at this elevated spend level, Jassy was blunt that supply will remain short: "we will still not have enough capacity to meet all the demand we have in 2026. And I believe this dynamic will also be true in 2027 too." He added that demand visibility already extends into 2028, and characterized it as "striking."
Jassy offered the most detailed public explanation yet of how Amazon thinks about the return profile on this spending, splitting it into two capital cycles. Data center shells require roughly two years of upfront investment before monetization begins, but then generate revenue for over 30 years without repeating that initial outlay. Servers and networking gear, by contrast, are purchased on much shorter demand-driven cycles, typically break even in under three years, and carry a useful life of five to six years, with most AI capacity now contracted for at least five-year terms. "As we get a few years out, the revenue growth outpaces the incremental CapEx growth, which will happen at some point. The resulting revenue, free cash flow and return on invested capital is very compelling," Jassy said, comparing the current trajectory favorably to the early cloud computing buildout.
AWS Margins Expand Despite Heavy AI Investment, Countering a Key Bear Case
One of the more consequential data points for investors was AWS operating margin, which came in at 39%, up 650 basis points year-over-year (520 basis points excluding a one-time derivative accounting gain tied to energy contracts). This directly challenges the widely held assumption that AI workloads would structurally dilute cloud margins near-term. Olsavsky attributed the strength to "disciplined efficiency gains, capacity optimization... and always closely managing our fixed costs," while cautioning that margins will continue to fluctuate based on investment timing and AI-versus-core mix. Jassy reinforced the point, noting AWS's AI margin trajectory is tracking the core cloud business's historical path, "a little bit ahead of that pace."
Custom Silicon Business Crosses $25 Billion, Third-Party Trainium Sales Now Under Consideration
Amazon's chips business, spanning the Trainium AI accelerator and Graviton CPU lines, now generates over $25 billion in annualized revenue, growing at triple-digit percentages. Separately, AI-specific revenue also crossed $25 billion on its own, also growing triple digits. Both Anthropic and OpenAI have signed multiyear, multi-gigawatt commitments to Trainium, and Jassy listed a growing roster of AI-native adopters including Neura Robotics, Odyssey, TwelveLabs, Decart, Poolside and Uber. Graviton, meanwhile, is used by 98% of Amazon's top 1,000 EC2 customers, with revenue commitments nearly tripling quarter-over-quarter.
In response to analyst questioning from Morgan Stanley's Brian Nowak, Jassy confirmed Amazon is now actively exploring selling Trainium chips directly to third parties, outside of its own cloud, a potential new business line. "We have an increasing number of customers who are interested in us providing the Trainium chips to them separate from even from our cloud... I expect there's a real chance we'll do that in the future," he said.
No Rush Toward a Proprietary Frontier Model
Asked directly by JPMorgan's Doug Anmuth whether Amazon needs its own frontier-class model to compete at the top of the AI stack, Jassy pushed back on the premise. "AWS and Amazon can have a wildly successful business without its own frontier model," he said, arguing that the market is moving toward multiple comparable models rather than a single winner, all of which Amazon offers through Bedrock. He did confirm Amazon is pursuing its own frontier model, but framed it as a tool for controlling internal costs and prioritization rather than a competitive necessity, predicting "within the next few years, you're going to have at least a half dozen models that are comparably good to each other... and one of them will be ours."
Grocery Finally Finds Its Model After Years of Experimentation
After several years of what Jassy characterized as trial and error, Amazon appears to have found a grocery format that works: same-day perishables delivery embedded within its existing same-day fulfillment facilities, now live in 2,300 U.S. cities. The results are notable, monthly active perishables customers are up over 50% since the start of the year, same-day perishables orders average three times more units than typical orders, and fresh groceries now account for six of Amazon's top 20 best-selling items site-wide. Amazon remains the second-largest U.S. grocer by gross merchandise volume, with the category surpassing $150 billion in GMV last year.
Guidance and One-Time Items
Q2 operating income benefited from $1.2 billion in combined one-time items: approximately $600 million in tariff-related refunds within the North America segment, and a roughly $600 million fair-value gain on energy derivative contracts tied to power procurement for data centers, booked mostly within AWS. Olsavsky was careful to note the tariff refund pool is limited in scope, since Amazon is largely not the importer of record for goods sold on its platform, and that any further refunds tied to specific pass-through charges will be returned directly to affected customers.
For the third quarter, Amazon guided net sales of $197 billion to $202 billion and operating income of $22.5 billion to $26.5 billion. Management flagged that the year-over-year growth rate will look artificially soft due to Prime Day shifting into Q2 this year versus entirely in Q3 last year, a timing effect Olsavsky said suppresses reported Q3 growth by nearly 400 basis points. Foreign exchange is expected to be a further 80 basis point headwind.