Amazon experienced a significant surge in its stock, gaining nearly 14% on Friday, which could add over $340 billion in market value. This jump was primarily driven by a 37% increase in second-quarter cloud revenue from Amazon Web Services (AWS), marking its strongest cloud growth in over four years. This performance helped to reinforce investor confidence in Amazon's substantial AI investments and addressed previous concerns about the company lagging behind other Big Tech rivals in the AI race. Microsoft also saw a more than 15% surge earlier in the week after its cloud unit surpassed estimates with a 43% revenue increase.
Several analysts responded positively to Amazon's results, with at least 15 brokerages raising their price targets on the stock. For instance, Benchmark analyst Daniel Kurnos raised his target to $400 from $370, calling it one of the most impressive quarters in a decade. JPMorgan analyst Doug Anmuth lifted his target to $365 from $330, and BofA increased its price objective to $320 from $310. Wedbush Securities analysts Ygal Arounian and Chase Tohanczyn raised their target to $310 from $293, noting it was the "cleanest beat among the hyperscalers."
Despite a sharp swing to negative free cash flow, with the company burning $7.6 billion on a trailing 12-month basis compared to $18.2 billion in positive free cash flow a year earlier, analysts largely overlooked this due to the strong cloud performance. CEO Andy Jassy reassured investors that Amazon's increased capital spending, projected to rise 10% to $220 billion for 2026, is solely to meet existing demand, with a majority of 2027 and some 2028 cloud capacity already reserved by customers. Analysts like Bill Birmingham of REX Financial noted that the market is now focused on whether unprecedented AI spending generates visible, near-term revenue and margin expansion, which Amazon demonstrated this quarter.
Amazon's results contrast with Meta and Alphabet, which both saw shares slump 7% despite revenue growth, as they raised capital spending forecasts while free cash flows declined. This highlights a growing divide in investor tolerance for increasing AI spending, set to exceed $730 billion this year, with Amazon earning the right to continue spending by showing immediate returns. The company trades at a price-to-earnings ratio of 24.67, compared to Microsoft's 22.94 and Alphabet's 19.35.
