Amazon's most profitable division AWS grew 17.5% YoY in Q2—but its growth lagged behind rivals
With billions of investments in AI infrastructure, its core businesses continue to show resilience amid geopolitical uncertainty and trade policy risks.
Amazon posted another blockbuster quarter, easily beating Wall Street’s revenue and earnings expectations. But the optimism was short-lived. The stock slid more than 3% in after-hours trading as investors reacted to a cautious operating income forecast and a surge in capital spending, mostly tied to Amazon’s massive bet on artificial intelligence.
For the three months ended June 30, the tech giant reported $167.7 billion in revenue, up 13% year-over-year and ahead of analyst estimates of $162.1 billion. Net income jumped to $18.2 billion, up from $13.5 billion last year, while earnings per share reached $1.68, well above the $1.33 forecast. Operating income came in at $19.2 billion, also exceeding expectations.
At the heart of that performance was Amazon Web Services (AWS), which remains the company’s most profitable unit. The cloud division brought in $30.9 billion in revenue, growing 17.5% year-over-year, and contributed $10.2 billion in operating profit, over half of Amazon’s total. Yet, in the race to dominate the generative AI market, AWS is under increasing pressure. Its growth lagged behind that of Microsoft Azure (up 39%) and Google Cloud (up 32%) in the same quarter.
A Heavy AI Price Tag
To compete, Amazon is investing billions in AI infrastructure, from data centers to computing hardware and logistics networks around the world. Capital expenditures reached $32.2 billion in Q2, nearly doubling from a year earlier, with a large portion directed at supporting AI capabilities through AWS. CEO Andy Jassy reaffirmed the company’s long-term vision, saying Amazon is building for a future where AI transforms “every customer experience.”
But those aggressive investments come at a cost. Amazon’s free cash flow for the trailing 12 months fell to $18.2 billion, down sharply from $53 billion a year ago. That drop in liquidity, despite rising profits, is fuelling investor concerns that the returns from AI might not materialise quickly enough to justify the spending.
Meanwhile, Amazon’s core businesses showed continued resilience. Online store revenue grew 11% to $61.5 billion, and third-party seller services rose to $40.3 billion, also up 11%. Subscription services like Prime increased 12% to $12.2 billion, and physical stores climbed 7%. But the standout was advertising, which surged 23% to $15.7 billion, its strongest growth in over a year, cementing Amazon’s position behind only Meta and Alphabet in the digital ad space.
Emmanuel Oyedeji
Looking ahead
Despite the growth in the quarter, Amazon’s Q3 forecast didn’t inspire confidence. The company projected revenue between $174.0 billion and $179.5 billion, with 10% to 13% growth, and operating income of $15.5 billion to $20.5 billion. That midpoint was slightly below market expectations. The company also flagged geopolitical uncertainty, including trade policy risks under the Trump administration, even as U.S. consumer demand has remained strong.
Amazon's huge investments in AI are a big reason why its stock price is doing well and investors are happy. Some investors are worried about how much money the company is investing in AI, even as its main businesses (cloud computing, e-commerce, and advertising) are doing well.
