Amazon’s cloud business is on the rise, and so is its capital spending

Amazon was one of several tech giants on Wednesday to beat Wall Street’s first-quarter earnings forecasts, providing more financial evidence that the artificial intelligence boom continues to reward companies that provide the picks and shovels.

Amazon’s cloud business is the latest example. Amazon Web Services, buoyed by its role in fueling the artificial intelligence boom, saw its net sales increase 28% year over year, rising to $37.6 billion, the company said on Wednesday. This is AWS’s fastest growth rate in 15 quarters, Amazon President and CEO Andy Jassy said during the company’s earnings call.

Jassy attributed AWS’s success to its role in providing computing for the AI ​​industry.

“It’s very unusual for a business to grow this quickly on a base of this size. The last time we saw growth at this segment, AWS was about half the size,” Jassy said. “We’ve never seen a technology grow as quickly as AI. Amazon is already a leader, and companies continue to choose AWS for AI.”

Jassy compared business unit growth to the millenniums. “To put our growth in perspective, three years after launching AWS, we had a revenue run rate of $58 million. [During] In the first three years of this AI wave, AWS’s AI revenue run rate exceeded $15 billion — nearly 260 times larger.

Even as money flows into its cloud business, Amazon is also spending increasingly large amounts of capital to build out the infrastructure that supports that cloud. Jassy said Wednesday that capital spending growth will continue in the near term.

“The faster AWS grows, the more short-term capital expenditures we will spend,” he said. “AWS has to come up with money to buy land, power, buildings, chips, servers, and networking equipment before we can monetize it.”

Jassy framed these investments as short-term cash burn for long-term gains, noting that these capital expenditures fund assets such as data centers that last more than 30 years or chips, servers and networking equipment that have a useful life of five to six years.

Jassy tried to allay investors’ concerns that the e-commerce giant is spending too much on infrastructure. It also offered more than a hint about how this type of spending impacts free cash flow.

“In times of very high growth like now — where capex growth significantly outpaces revenue growth — in the early years, free cash flow is challenged,” he said.

Amazon’s first-quarter earnings report reflects the drawdown of free cash flow. The company reported that free cash flow fell to $1.2 billion over the trailing twelve months, primarily driven by a year-over-year increase.
$59.3 billion in property and equipment purchases – much of it related to artificial intelligence. This represents a 95% decline from free cash flow of $25.9 billion in the first quarter of 2025.

“We went through this cycle with the first big wave of growth at AWS, and we liked the results. We expect to feel the same about this next wave with much greater potential revenue and free cash flow,” he added.

Meanwhile, the e-commerce giant’s total sales rose 17% to $181.5 billion year over year. The company reported that sales grew by 12% in North America and 19% in the rest of the world.