AMZN

After a week of companies beating expectations and getting sold anyway, Amazon broke the pattern — and the stock jumped about 10%. Revenue crossed $200 billion in a single quarter for the first time, up 20%. Operating income rose 43% to $27.5 billion, growing faster than sales, which is the sign of a business getting more efficient as it scales. The number everyone was waiting on was AWS, the cloud division, and it grew 37% to $42.2 billion — its fastest pace in 18 quarters, well past the 31% analysts expected. Advertising grew 26% to $19.8 billion. Amazon's own chip business and its AI business each passed $25 billion in annualized revenue. Two things to be careful about in the headline numbers. Reported earnings of $5.75 per share look spectacular against the $1.82 analysts expected, but most of that came from a one-time accounting gain on Amazon's stake in a private AI company, not from operations. The adjusted figure was $1.97 — still a beat, just a normal-sized one. The other item is cash. Amazon raised its capital spending plan for the year to $220 billion, up from $200 billion, and free cash flow over the past twelve months has swung from a positive $18 billion to a negative $7.6 billion. Building data centers costs money years before those data centers earn any. Management has been upfront that this squeezes cash flow in the near term. Here's the thing that makes Amazon different from everything else we've written about this week. Celestica, Credo, Coherent, Corning, NVIDIA, Lam — all of them are waiting to find out whether companies like Amazon keep spending. Amazon is the answer to that question, and this quarter it answered by raising spending another $20 billion and saying its 2027 and 2028 data center capacity is already reserved. It also has a backlog of contracted AWS business approaching half a trillion dollars. So owning Amazon is standing on the demand side of the trade rather than the supply side, and it comes with a retail business and an ad business attached that have nothing to do with AI. The number we'd watch going forward is the AWS profit margin, currently near 39%. All that new construction eventually shows up as depreciation expense. If margins hold as the spending flows through, the buildout is paying for itself. If they slide, that $220 billion starts looking expensive. (written with the help of Claude)