The Nasdaq and S&P 500 futures rose significantly, primarily boosted by Amazon's impressive 15% jump in share price after reporting much stronger profits and accelerating growth in its cloud computing business. Amazon's profit more than tripled year-over-year, largely attributed to its substantial investments in artificial intelligence technology. Analysts view this as a clear signal that Amazon's AI spending is paying off, leading the company to increase its forecast for capital expenditures this year. Amazon Web Services (AWS) saw a 37% revenue increase from a year earlier, reaching $42.2 billion in the quarter, surpassing analyst expectations for growth and marking its fastest expansion in 18 quarters.
Conversely, Apple experienced a 9.2% drop despite reporting better-than-expected profits for the latest quarter. The decline was driven by Apple's forecast for growth in the current quarter falling short of expectations, which executives attributed to a supply crunch in components due to the AI boom. This week saw strong rebounds for Microsoft, which surged over 15% after an upbeat cloud forecast, and Amazon, which had its biggest revenue growth in over four years, demonstrating that their AI investments are translating into higher profits. The market had been concerned that companies' massive AI data center investments might not yield sufficient profit, leading to sharp swings in the U.S. stock market throughout July.
Amazon's robust cloud sales growth reinforced investor confidence in its AI strategy, dispelling concerns about the company lagging behind rivals. The company increased its planned capital spending for 2026 by 10% to $220 billion to expand data centers and AI infrastructure, with a majority of its planned AWS capacity for 2027 and some for 2028 already reserved by customers. Although Amazon recorded negative free cash flow of $7.6 billion over the 12 months through June, compared to $18.2 billion in positive cash flow a year earlier, its AWS contract backlog increased significantly from $364 billion to $496 billion, strengthening the case for future revenue.
The Nasdaq Composite gained 86.20 points, or 0.34%, to 25,208.37, while the S&P 500 rose 10.05 points, or 0.12%, to 7,446.54. The Dow Jones Industrial Average also saw an increase, gaining 82.26 points, or 0.16%, to 52,290.32. All three major U.S. indexes are on track for weekly gains, largely due to the late-week rebound in tech stocks. However, the S&P 500 and Nasdaq were still on track for monthly losses, reflecting a sharp selloff in AI-linked stocks during July before this week's recovery. The Philadelphia Semiconductor index also rose 1.8% on Friday but was still down over 16.7% for July.
Analysts noted that Amazon, like Microsoft, is demonstrating that its AI-driven investments are yielding visible, near-term revenue and margin expansion, which is crucial for investor confidence. While companies like Meta and Alphabet also saw strong revenue growth, their stock prices slumped after they raised capital spending forecasts and reported cratering free cash flows, highlighting a growing investor divide on tolerance for escalating AI expenditure. Amazon's CEO Andy Jassy reassured investors that the company's spending is methodical and responsible, solely aimed at meeting existing demand, with future capacity already being reserved by customers.
