On the last day of July, Amazon told investors it would spend about $220bn on property and equipment this year, roughly $20bn more than it had guided three months earlier. Chief executive Andy Jassy blamed memory-chip prices, and added that even at $220bn AWS would not have enough capacity to meet 2026 demand. A week earlier, Alphabet had delivered a similar message and raised its own 2026 capital budget to $195–205bn.

One was rewarded and one was punished. The variable was not how much each will spend. It was how fast the spending is showing up as cloud revenue that customers have already agreed to pay for.

What Amazon actually reported

AWS — the rental business for computing, storage and machine-learning services that sits inside a retailer — grew 36.7% year on year to $42.2bn in the June quarter, a fifth consecutive quarter of acceleration and the fastest in eighteen. Operating margin reached about 39%, up 520 basis points excluding a one-time derivative gain. Contracted backlog stood at $496bn, growing at triple-digit rates, with management saying most 2027 capacity is already reserved and meaningful 2028 capacity committed.

That margin is not an accounting artifact. Effective at the start of 2025, Amazon shortened the assumed useful life of a subset of servers and networking gear from six years to five, citing faster technology turnover — a $1.0bn hit to AWS net income, on top of $920m of accelerated depreciation from early retirements. The depreciation clock is running against the margin, not for it.

The rest of the company is doing the funding. Consolidated revenue growth accelerated across four quarters, from 13.4% to 19.6%. Operating income rose 43.2% year on year while revenue rose under 20% — operating leverage, plainly. Advertising, the highest-margin slice of the retail machine, reached $19.8bn, up 26%.

The crack

Capital spending has now overtaken cash generation. Trailing-twelve-month capex of roughly $173bn exceeds operating cash flow of about $161.4bn, itself up a third, turning trailing free cash flow to minus $7.6bn from plus $18.2bn a year earlier. Amazon also does not neutralize its stock compensation: diluted shares rose 0.9% over the year, to 10,903m. Microsoft's count was flat.

Why the others diverged

Alphabet's Google Cloud grew 82% to $24.8bn, lifted cloud operating margin from 20.7% to 35.6%, and added $50bn of backlog in a quarter to reach $514bn — larger than AWS's. It fell 7% on the print because free cash flow went negative for the first time since its 2004 listing and the capex guide jumped. Microsoft is the clean case: revenue of $90.01bn grew 18%, Azure accelerated to 43% in constant currency and passed $100bn for the full year, at a 45.1% operating margin, and the shares rose 23.8% in a month, its 50-day average crossing above its 200-day in mid-August after months below. Meta is the counter-case: revenue grew 28% to $60.8bn but operating income fell 8.2% and margin compressed from 43.0% to 30.9% against a $130–145bn capex plan; its shares have been in a downtrend since mid-July and are down 16.2% over six months.

The durable piece of Amazon's position is contractual. An April agreement put $5bn of fresh equity into Anthropic and committed the model developer to spend $100bn on AWS over a decade, with up to five gigawatts of capacity. Anthropic already runs over a million Trainium2 chips on AWS, Amazon's in-house training silicon; the chip business is at a $25bn-plus annual run rate. The offset: AWS is the slowest-growing of the big three, holding roughly 28–30% of a $143bn quarterly market as Google Cloud reached 15%, its highest ever.

Price versus business

Amazon's reported price/earnings ratio of 20.5x is unusable: June-quarter net income of $62.65bn includes $53.4bn of non-operating gains, chiefly a non-cash markup of the Anthropic stake. Consensus 2027 earnings of $10.61 a share sit 16% below 2026's $12.64 purely as that gain rolls off.

On gross profit — comparable across businesses with margins from 52% to 81% — Amazon pays 7.06x trailing and 6.61x forward, the cheapest of the four against Meta at 8.05x, Alphabet 15.42x and Microsoft 16.32x. Six months ago it was 6.33x; in May, 7.77x. So the six-month advance is about nine points of gross-profit growth against twelve points of multiple expansion, and virtually all of the price move landed in one session: shares gapped 15.3% on 31 July, crossed $3tn of market value on 3 August, then faded 8.9%. Over three months the stock is down 3.7% while gross profit kept growing.

The setup

Where it stands — Amazon is converting record capex into accelerating AWS revenue, but the market has already taken back half the reward. Would confirm — AWS growth above 36% again in the third quarter with backlog still expanding faster than revenue. Would invalidate — AWS operating margin falling below the mid-30s as depreciation from the $220bn build lands. Watch next — Third-quarter results, guided to $197–202bn revenue and $22.5–26.5bn operating income, due late October. Valuation — 7.06x trailing gross profit, 6.61x forward, against 6.33x six months ago and Microsoft's 16.32x.