AWS is ‘booming,’ but Amazon’s free cash flow turns negative on record AI spending

Amazon Web Services revenue grew 37% last quarter, its fastest pace since the end of 2021, but the company is spending so much on data centers and infrastructure to fuel that growth that its free cash flow for the past 12 months turned negative for the first time since 2023.

Overall, the tech giant reported $200.6 billion in revenue for the second quarter, up 20%, with operating income of $27.5 billion, up 43%. That beat Wall Street’s expectations of about $196.4 billion in revenue, and topped the high end of Amazon’s own guidance.

Profits were $62.6 billion, or $5.75 per share. However, that included $53.4 billion in pre-tax gains, primarily on Amazon’s investment in Anthropic, which inflated the bottom line. Excluding those gains, EPS would have been about $1.95, above analyst expectations of $1.82.

Amazon shares rose more than 8% in after-hours trading following the report.

AWS revenue reached $42.2 billion in the quarter, a $169 billion annualized run rate. Operating income in the cloud division rose 64% to $16.6 billion, lifting AWS operating margin to 39.4% from 32.9% a year ago — evidence that the AI buildout is starting to convert into profit, not just revenue.

“AWS is booming,” CEO Andy Jassy said in the release, adding that the company’s AI and chips businesses “each eclipsed run rates of more than $25 billion.” The chips business, which Jeff Bezos called the next pillar of the company this week, was at a $20 billion run rate three months ago.

Amazon’s operations generated $161.4 billion over the past 12 months, but the company spent a net $169 billion on property and equipment — up $66.1 billion from a year earlier, an increase Amazon attributed primarily to AI investments — leaving a shortfall of $7.6 billion in free cash flow.

A year earlier, it had $18.2 billion left over for the prior 12 months, by comparison.

Free cash flow is what’s left after a company covers its operating costs and pays for things like data centers and warehouses. It’s an important measure of financial health, which investors watch closely because it shows how much cash a business actually creates after paying for its own growth.