Investors Love AI, as Long as You’re a Cloud Host

Amazon delivered stronger-than-expected second-quarter earnings on Thursday, with investors rewarding the company after solid revenue growth and another strong performance from its cloud business.

Net sales increased 20% year over year, while Amazon Web Services remained a standout performer. The results sent Amazon’s shares up nearly 10% in after-hours trading.

Perhaps more importantly, Amazon showed no signs of slowing its enormous investment in AI infrastructure, despite concerns that investors might eventually push back against soaring capital spending.

Amazon keeps increasing AI infrastructure spending

One figure highlighted the scale of Amazon’s investment strategy.

For the fiscal year ended June 30, Amazon spent $173 billion on property and equipment, up from $107.65 billion a year earlier. That category includes data centres, GPUs, natural gas turbines, and land purchases.

The company also increased its 2026 capital expenditure forecast from $200 billion to $220 billion.

Amazon has even started drawing on its cash reserves to help finance the spending, ending the quarter with $7.6 billion less cash than it had a year earlier and reporting its first period of negative free cash flow this year.

Ordinarily, that level of spending might worry investors. This time, however, the reaction was different.

AWS continues to justify the investment

The reason is Amazon Web Services.

AWS generated $42 billion in quarterly revenue, representing 37% year-over-year growth.

While that revenue does not offset Amazon’s capital spending on its own, it demonstrates that demand for cloud infrastructure continues to rise alongside the company’s expansion.

Given that new data centres often take years to build before generating revenue, investors appear encouraged that customer demand is keeping pace.

Amazon’s AI strategy also extends beyond constructing more data centres.

The company continues investing heavily in its custom Trainium and Graviton chips, technologies designed to improve the efficiency and profitability of its cloud business.

Those investments do not appear directly in capital expenditure figures but could strengthen AWS margins over time.

During Amazon’s earnings call, CEO Andy Jassy said the AI business is following a similar margin trajectory to AWS during its early years.

Jassy also argued that Amazon Bedrock and AWS can remain highly successful without relying on a single frontier AI model because customers increasingly want access to multiple models rather than one dominant system.

Cloud providers are winning investor confidence

Amazon is not alone in benefiting from investor enthusiasm.

Microsoft and Google also saw their shares rise after reporting strong cloud revenue, reinforcing investor confidence in companies providing AI infrastructure.

By contrast, businesses spending heavily on AI without equally clear revenue streams continue to face greater scepticism.

Meta, for example, saw its shares fall after investors focused on its declining cash flow and continued AI-related spending.

AI demand remains the biggest question

For now, investors appear to view cloud providers as the strongest and most dependable part of the AI ecosystem, while remaining less certain about the economics of AI model developers and startups.

However, that confidence ultimately depends on sustained demand from those same AI companies.

Revenue earned by cloud providers is funded by the AI spending of customers building and deploying models.

If those customers eventually reduce spending because AI demand weakens or becomes uneconomic, cloud providers could also feel the effects.

Competition exists throughout every layer of the AI industry, but long-term success still depends on whether enough demand exists to justify the massive infrastructure buildout now underway.

Cloud providers like AWS may be somewhat removed from that risk today, but they are not immune to it over the long term.