Second quarter results beat Wall Street on nearly every line. For brands that sell on Amazon, the numbers underneath the headline say a lot about ad costs, AI spending, and what the rest of the year could bring.
Amazon delivered a blowout second quarter, and for the first time in its history the company booked more than $200 billion of revenue in a single three month stretch. Reporting results for the period that ended June 30, Amazon said on July 30 that total net sales reached $200.6 billion, up 20% from a year earlier. Investors liked what they saw. The stock jumped close to 10% in after hours trading as the report landed.
The numbers that moved the stock
The engine of the quarter was Amazon Web Services. The cloud division grew 37% year over year to $42.2 billion, its fastest pace of growth in 18 quarters, and it now runs at an annualized rate of about $169 billion. AWS also carried the profit story, contributing roughly 60% of the company’s operating income. Amazon reported an AWS backlog, meaning contracted work not yet recognized as revenue, of $496 billion, a sign of how much demand is queued up behind the current numbers.
The rest of the report was strong across the board. Operating income rose 43% to $27.5 billion. North America sales climbed 16% to $116.2 billion, and the international segment grew 15% to $42.2 billion. Adjusted earnings came in at $1.97 a share, ahead of the roughly $1.82 analysts had expected, and revenue beat the consensus estimate of about $196.5 billion. Reported net income looked enormous at $62.6 billion, though that figure was inflated by a $53.4 billion gain tied to Amazon’s investment in the AI company Anthropic, rather than by the core business alone.
The advertising line brands should watch
For anyone selling on the marketplace, the most important number in the release was the advertising line. Amazon’s advertising services brought in $19.8 billion in the quarter, up 26% year over year, and Sponsored Products remained both the largest piece of that business and its main growth driver. Amazon’s ad operation is now the third largest in digital advertising behind only Google and Meta, and it has grown into an ecosystem worth well over $50 billion a year.
That growth cuts two ways. It is a triumph for Amazon and a rising cost of doing business for brands. As more advertisers pour money into the same finite set of sponsored placements, competition for the top of search intensifies and the price of a click drifts upward. Industry trackers have pointed to average cost per click rising in the neighborhood of 15% over the past year. Layered on top of the cash flow changes that hit sellers this spring, the message from the ad line is consistent. Advertising on Amazon is no longer optional for brands that want to be seen, and it is getting more expensive to do well.
The shape of that ad business is changing too, not just its size. Amazon has spent the past year expanding beyond the keyword driven search ads that built the platform, pushing brands toward video formats, streaming placements through Sponsored TV, and its Demand Side Platform, which used to be reserved for the largest advertisers and is now within reach of far smaller brands. Agency analyses point to Sponsored Brands Video as one of the strongest performing formats of the year, and to a broader move away from treating Amazon ads as a simple bidding game and toward running them as a full marketing channel. For brands, the takeaway from a 26% growth quarter is not only that clicks cost more, but that the winners are increasingly the ones using the full toolkit rather than a single ad type.
The AI bill is coming due
The other headline out of the quarter was spending. Amazon is investing aggressively to keep up with demand for AI computing, and chief executive Andy Jassy told investors the company now expects capital spending to reach around $220 billion this year. Purchases of property and equipment jumped by roughly $66 billion compared with a year ago, most of it aimed at AI capacity. That buildout flipped Amazon’s free cash flow, which over the trailing twelve months swung to an outflow of about $7.6 billion, down from a healthy inflow a year earlier. Jassy described AWS as booming, and noted that Amazon’s AI and custom chips businesses had each passed run rates of more than $25 billion.
Part of what makes those investments pay off is who is renting the capacity. Amazon is increasingly positioning AWS as the infrastructure layer for the largest names in AI, striking capacity arrangements with the likes of OpenAI, Anthropic, and Meta. The same demand that is forcing Amazon to spend heavily is also filling its cloud order book, which is the balance the company is asking investors to trust.
The market reaction said as much about the mood in technology stocks as it did about Amazon. The report arrived just after Meta had been punished by investors for signaling another surge in AI spending, part of a broader unease about whether the industry’s enormous buildout will ever pay for itself. Amazon offered a reassuring counterpoint. By showing that its AI and chips businesses had each crossed a $25 billion run rate, the company gave investors concrete evidence of demand rather than just capacity, and the stock’s double digit jump reflected the relief. It was a reminder that in the current climate, spending on AI is only rewarded when a company can point to revenue on the other side of it.
A softer outlook, and a Prime Day quirk
The one place Amazon fell short of expectations was its forecast. The company guided to revenue of between $197 billion and $202 billion for the third quarter, below the roughly $204 billion analysts were modeling. Amazon pinned the gap on a calendar quirk rather than weakening demand. This year it moved its Prime Day event into June, whereas last year the event fell in July, which distorts the year over year comparison for the third quarter. Stripping out the effect of Prime Day in both years, Amazon said third quarter growth would look nearly 400 basis points higher than the guidance implies.
Amazon does not disclose its own Prime Day sales, but outside data suggested the event was healthy. According to figures from Adobe, online spending across United States retailers rose 9% to $26.4 billion over the week of the event. The retail side of the business also kept setting records. Amazon said it delivered items to Prime members faster than ever in the first half of the year, with more than 40% more items arriving same day or overnight, and it called out grocery and everyday essentials as growing meaningfully faster than the rest of the company.
Taken together, it was the kind of quarter that quiets doubts. AI demand is real enough to reaccelerate the cloud business, the retail and advertising engines are humming, and even the soft looking guidance came with an asterisk. For brands, though, the quarter is best read not as a stock story but as an operating one. Amazon’s advertising machine is now one of the most important profit drivers in the entire company, and every quarter it grows, the brands buying those ads should expect the competition, and the cost, to climb right alongside it.
Reporting sources: Business Insider, Reuters, eWeek, Neowin, The Next Web, MLQ, The Spokesman Review, and Amazon.
