Amazon surges 10% after hours on Q2 beat; revenue hits $200B

Amazon shares rallied in after-hours trading following a second-quarter earnings report that significantly exceeded expectations, driven by accelerating growth in its high-margin cloud computing business and a clear articulation of the company's AI investment strategy.

Key Financial Results

• Revenue: $200 billion, up 20% year over year, beating the consensus estimate of $196.47 billion (LSEG)
• GAAP Earnings Per Share: $5.75, up 242% year over year (not comparable to the $1.82 consensus estimate due to $53.4 billion in pre-tax gains from the Anthropic investment)
• Operating Income: $27.46 billion, up 43% year over year, beating the $23.57 billion consensus forecast
• Operating Income Benefit: Approximately $1.2 billion in lower expenses, including $600 million in tariff-related refunds and a favorable change in the fair value of energy contracts

Market Reaction

Amazon jumped about 10% to $258 in after-hours trading, reaching its highest level since early June. This marks a significant reversal from recent months, when shares fell from approximately $275 in early May to $232 entering this week amid market concerns over unlimited AI infrastructure spending by hyperscalers.

AWS Performance

Amazon Web Services (AWS) delivered its fastest growth in 18 quarters:

• Revenue Growth: 36.8% year over year, accelerating from 28.4% last quarter
• Revenue: $42.23 billion, well above the consensus forecast of $40.54 billion (approximately 31% growth)

Capital Expenditure and AI Investment

Management raised its full-year capital expenditure forecast by $20 billion to $220 billion, largely driven by higher memory costs. Unlike Alphabet and Meta, whose shares fell after raising capital spending guidance, Amazon's stock remained steady.

CEO Andy Jassy addressed investor concerns on the conference call, explaining the company's line of sight to earning attractive returns on data center investments. He noted that cash flow should improve as new data centers come online and server capacity is utilized.

"As we get a few years out and 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." — Andy Jassy

Why We Own Amazon

• Cloud Business: The primary profit driver
• Advertising: Fast-growing, high-margin business
• E-commerce Logistics: Robust infrastructure makes Amazon the dominant online storefront
• Prime: Leverages free shipping, video streaming, and other perks to maintain subscriber loyalty

Competitors: Walmart, Target, Microsoft, Alphabet

Most Recent Buy: April 15, 2025

Initiated: February 2018

Commentary

The strong market response reflects growing investor confidence in Amazon's ability to monetize its AI investments. AWS is delivering rapid revenue growth at highly attractive margins, and the path to returns appears clearer at Amazon than at peers such as Meta.

We reiterate our 1 rating and $300 price target.