Amazon soars after CEO Andy Jassy makes the case for its massive AI investment

An important development from the financial markets: Amazon shares rallied after the company reported a much stronger-than-expected second quarter, with its high-margin cloud computing business delivering its fastest growth in 18 quarters. CEO Andy Jassy also delivered exactly what investors like us wanted to hear: a clear explanation of how its massive investment in artificial intelligence will generate returns. Revenue increased 20% year over year to $200 billion, beating the consensus analyst estimate of $196.

47 billion, according to LSEG data. Earnings per share based on generally accepted accounting principles (GAAP) increased 242% year over year to $5. However, we cannot compare it to the $1.

Economic Details

82 LSEG consensus estimate because the results included pre-tax gains of $53. 4 billion in non-operating income primarily related to the company's investment in Anthropic. The inability to compare earnings is why we are placing greater emphasis on operating income, which knocked it out of the park, increasing 43% year over year to $27.

46 billion, beating the $23. 57 billion consensus forecast. Operating income benefited from roughly $1.

2 billion in lower expenses, driven by $600 million in tariff-related refunds and a favorable change in the fair value of energy contracts. AMZN 1Y mountain Amazon 1-year stock performance Bottom line Amazon jumped about 10% to $258 in after-hours trading, putting shares at their highest level since early June. In May and June, the market began to worry about the seemingly unlimited AI infrastructure spending by the hyperscalers.

Analyst Views

The uncertainty over the returns companies like Amazon would earn on the hundreds of billions of dollars invested in artificial intelligence caused shares to drop from their high of about $275 in early May to $232 entering this week. That's what makes this earnings print — and the market's reaction — so interesting. Ignore the outlook for a moment because Amazon's massive size makes it difficult for the company to guide on a quarter-to-quarter basis.

That's why management usually errs on the conservative side, and the market can see that tonight. Amazon's second-quarter revenue and operating income were above the high end of the range provided three months ago. What investors really wanted to know about was capital expenditures (capex), and they didn't flinch when management raised its forecast this year by $20 billion to $220 billion.

The increase was largely driven by higher memory costs. Unlike Alphabet and Meta , whose shares fell after they raised capital spending guidance, Amazon's stock didn't skip a beat. Why we own it Amazon is widely known for online shopping, but its cloud business is the real breadwinner.

Economists are analysing what the news means for the markets.