Amazon’s cloud business is surging — and so is its capital spending
Amazon was one of several tech giants that on Wednesday beat Wall Street’s first-quarter earnings expectations, offering more financial evidence that the AI boom continues to reward companies that supply the picks and shovels. Amazon’s cloud business is the latest example. Amazon Web Services (AWS), fueled by its role in the AI boom, saw its net sales increase 28% year-over-year, climbing to $37.6 billion. This was the fastest growth rate for AWS in 15 quarters, according to Amazon president and CEO Andy Jassy during the company’s earnings call. Jassy attributed AWS’ success to its role in providing compute to the AI industry. "It's very unusual for business to grow this fast on a base this large. The last time we saw growth at this clip, AWS was roughly half the size," he said. "We’ve never seen a technology grow as rapidly as AI. Amazon is already a leader, and companies continue to choose AWS for AI." Jassy compared AWS’ growth to the early 2000s. "To put our growth in perspective, three years after AWS launched, it had a $58 million revenue run rate. During the first three years of this AI wave, AWS’s AI revenue run rate is over $15 billion — nearly 260 times larger." Even as AWS grows, Amazon is investing heavily in capital expenditures to build infrastructure supporting its cloud business. Jassy noted that capital expenditure growth would continue, as AWS needs to lay out cash for land, power, buildings, chips, servers, and networking gear in advance of monetization. "The faster AWS grows, the more short-term capex we’ll spend," he said. These investments are long-term assets, such as data centers lasting over 30 years and chips, servers, and networking gear with a useful life of five to six years. Jassy also addressed investor concerns about excessive spending on infrastructure, noting that free cash flow is challenged during high-growth periods. Amazon’s first-quarter earnings report showed a decrease in free cash flow to $1.2 billion for the trailing twelve months, driven by a $59.3 billion increase in purchases of property and equipment, primarily related to AI. This represents a 95% drop from the $25.9 billion in free cash flow in the first quarter of 2025. Jassy emphasized that past cycles with AWS’ growth have yielded similar results, expecting the same outcome for the current AI-driven growth wave. Overall, Amazon’s first-quarter sales rose 17% to $181.5 billion year-over-year, with 12% growth in North America and 19% growth globally.
Source: TechCrunch