Amazon Stock Soars After Q2 Earnings: Buy, Hold, or Take Profits?

Although Amazon also announced plans to increase its already massive AI spending, investors were more focused on the company's rapidly improving growth profile than its near-term free cash flow, sending shares more than 15% higher and near a 52-week peak. 

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AWS Steals the Show

The biggest highlight from Amazon's second-quarter was undoubtedly AWS.

Revenue from AWS surged 37% year over year to $42.2 billion, representing the cloud platform's fastest growth rate in roughly 18 quarters as enterprise AI demand continues to accelerate.

With Amazon gaining meaningful traction from generative AI workloads, AWS is holding its place as the largest cloud infrastructure provider (30% global market share) ahead of Microsoft’s (MSFT) Azure and Alphabet’s (GOOGL) Google Cloud.   

CEO Andy Jassy noted that AWS is experiencing extraordinary demand, stating that the business could eventually become a trillion-dollar annual revenue opportunity. Management also indicated that demand continues to outpace available capacity, with AI demand already extending well into 2028.

Beyond AWS, Amazon's advertising business remained another standout performer, continuing to post impressive double-digit growth as advertisers increasingly leverage Amazon's vast ecosystem to reach consumers.

Q2 Results Easily Top Expectations

Overall, Amazon reported Q2 revenue of approximately $200.6 billion, representing nearly 20% YoY growth and comfortably ahead of analyst consensus expectations of roughly $197.1 billion.

Meanwhile, earnings per share and net income surged well beyond consensus estimates as operating leverage improved across several business segments.

GAAP net income came in at $62.6 billion, a 244% increase from $18.2 billion a year ago, with the growth being heavily boosted by a non-operating mark-to-market gain on Amazon's investment in AI development firm Anthropic. 

More importantly than its GAAP net income, Amazon's operating income climbed 43% to a quarterly record of $27.5 billion, as accelerating AWS growth and continued efficiency gains drove meaningful margin expansion.

Furthermore, Amazon’s adjusted earnings increased 12% YoY to $1.88 per share and eclipsed Q2 EPS estimates of $1.83.

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Amazon’s Q3 Guidance

Looking ahead, Amazon guided for third-quarter net sales of $197 billion to $202 billion and operating income of $22.5 billion to $26.5 billion.

While the revenue outlook came in modestly below Wall Street's expectations of $204.16 billion (Current Qtr below), management noted that this year's earlier Prime Day timing created a meaningful headwind to the comparison.

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AI Spending Continues to Ramp

One area that may concern some investors is Amazon's capital spending.

Management raised its 2026 capital expenditure outlook to approximately $220 billion from a prior expectation of roughly $200 billion, following CapEx of $132.82 billion last year. The projected 65% YoY increase largely reflects continued investments in AI infrastructure, memory chips, networking equipment, and new data centers.

Ordinarily, such a large increase in spending might pressure Amazon stock. Instead, investors largely welcomed the news because the higher investments are being accompanied by rapidly accelerating AWS growth and expanding AI demand.

In other words, the market appears increasingly convinced that Amazon's AI spending is generating tangible returns rather than simply inflating costs.

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Monitoring Amazon’s Valuation (P/E)

Following its post-earnings rally, Amazon stock is trading at roughly 30X forward earnings.

This is a slight premium to the benchmark S&P 500’s 21X and its Zacks Internet-Commerce Industry average of 24X, which includes other noteworthy e-commerce leaders such as Alibaba BABA), MercadoLibre MELI), and eBay EBAY).  

That said, Amazon has long commanded a premium valuation relative to the broader market, reflecting its dominant competitive position across e-commerce, cloud computing, advertising, logistics, and now artificial intelligence.

Plus, it's noteworthy that AMZN is trading at a 31% discount to its five-year median forward P/E of 44X and remains far below its five-year high of 161X, indicating Amazon has steadily grown into what was once a much more demanding valuation.

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Conclusion & Strategic Thoughts

For long-term investors, Amazon arguably remains one of the highest-quality large-cap technology companies thanks to its multiple growth engines and substantial reinvestment opportunities.

Amazon delivered exactly what investors wanted to see this quarter: accelerating AWS growth, strong profitability, robust AI demand, and another impressive revenue beat. Although management significantly increased capital spending, the market viewed the additional investment as a positive signal given the strength of customer demand and Amazon's expanding AI opportunity.

However, after today's sharp rally and with elevated AI investments likely to pressure free cash flow in the near term, investors may still want to await additional earnings estimate revisions following the company’s outstanding Q2 report.

For now, Amazon stock currently lands a Zacks Rank #3 (Hold).

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This article originally published on Zacks Investment Research (zacks.com).

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