Amazon Shares Slip as $59B AI Spending Surge Overshadows AWS Acceleration

AWS Re-acceleration and the AI Arms Race

Amazon reported first-quarter revenue of $182 billion, surpassing the $177.10 billion estimated by analysts. The primary engine of this growth was Amazon Web Services (AWS), which saw sales jump 28% year-over-year to $37.6 billion. This represents the segment's fastest growth rate in 15 quarters, signaling that the cloud giant is successfully capturing the surge in enterprise demand for generative AI infrastructure.

CEO Andy Jassy highlighted the company's custom silicon efforts, noting that Amazon’s chips business—which includes the Graviton, Trainium, and Nitro lines—has now topped a $20 billion annual revenue run rate. The company also secured a major commitment from OpenAI to consume approximately two gigawatts of Trainium capacity, further solidifying its position as a primary alternative to Nvidia-based infrastructure.

The Anthropic Effect and EPS Quality

On the bottom line, Amazon posted GAAP EPS of $2.78, crushing the consensus estimate of $1.63. However, analysts were quick to point out that the quality of this beat was impacted by a massive non-operating item. The company recorded a $16.8 billion pre-tax gain from its investment in AI startup Anthropic, which significantly inflated net income to $30.3 billion.

Stripping away the paper gains from Anthropic, the core operating performance remained robust, with operating income rising to $23.9 billion, well above the company's guided range of $16.5 billion to $21.5 billion. North America segment operating income grew to $8.3 billion, while the International segment contributed $1.4 billion in profit.

Cash Flow Concerns and CapEx Surge

Despite the strong operational results, the stock price reaction turned negative as investors parsed the company's cash flow statement. Free cash flow for the trailing twelve months plummeted to $1.2 billion, down from $25.9 billion in the prior-year period. This decline was driven by a staggering $59.3 billion year-over-year increase in capital expenditures, primarily directed toward AI infrastructure.

Management reiterated its commitment to a record $200 billion capital expenditure plan for the full year 2026. While Jassy expressed optimism about the long-term returns on these investments, the scale of the spending is creating a near-term drag on liquidity that appears to be weighing on investor sentiment.

Forward Outlook and Q2 Guidance

Looking ahead, Amazon provided a bullish revenue forecast for the second quarter. The company expects net sales to fall between $194 billion and $199 billion, representing 16% to 19% growth year-over-year. This guidance midpoint of $196.5 billion sits comfortably above the Wall Street consensus of $189.5 billion.

Operating income for Q2 is projected to be between $20 billion and $24 billion, compared with $19.2 billion in the second quarter of 2025. This outlook assumes that Prime Day will occur in the second quarter, providing a seasonal tailwind for the company's retail and advertising segments, the latter of which has now reached a $70 billion trailing-twelve-month revenue run rate.