Second-quarter net sales rose 20% excluding currency moves to $200.6bn ($196.5bn expected), with growth broad-based across the group. AWS was the standout, up 37% to $42.2bn.
Operating profit rose 43% to $27.5bn ($23.5bn expected), driven by strong growth across AWS and the wider business.
Free cash flow fell to an outflow of $7.6bn on a trailing twelve-month basis, down from an inflow of $18.2bn a year ago – mainly driven by investment in AI infrastructure. Net debt, including leases, stands at $100.2bn.
For the third quarter, net sales are expected to be between $197-202bn, up 9-12%. Operating profit is expected to be between $22.5-26.5bn ($24.9bn expected).
The shares rose 11.3% in after-hours trading.
Our view
Amazon’s second-quarter results have made the investment case easier to explain. AWS is no longer merely promising AI-driven acceleration; it is delivering it, while retail and advertising are helping the broader business move forward. The response reflects a cleaner growth story, but the scale of spending means investors still need to see strong returns follow.
AWS remains the key profit engine and clearest route for Amazon to benefit from AI. Growth has stepped up sharply, demand spans traditional cloud work and newer AI services, and capacity is largely committed ahead. Amazon’s AI revenue and custom-chip businesses are scaling quickly, suggesting the opportunity reaches beyond a handful of large customers. Its broad range of models, software and in-house chips should help as companies move from testing AI to using it across their operations.
Amazon also has more going for it than the cloud. Retail is in much better shape than a few years ago, helped by faster delivery, better stock placement and automation. Grocery and same-day delivery are encouraging customers to shop more often, while Prime remains a powerful retention tool. Advertising adds another attractive layer, using Amazon’s shopping data and placement close to the point of purchase to drive growth and support profitability.
The trade-off is investment. Capital spending has moved higher again as Amazon builds data centres, buys servers and absorbs rising component costs. Management argues that server investments can pay back within a few years against longer customer commitments. That is reassuring while demand exceeds available capacity, but depreciation will rise, and free cash flow is likely to remain under pressure.
Though Amazon is no stranger to this model, with a long history of pouring its huge operating cash flows back into infrastructure, first across retail and logistics, and increasingly across cloud and AI. This cycle goes further, with Amazon now leaning more heavily on debt markets to supplement its own cash generation. Its exceptional balance sheet has room to be flexed, so for now, this is more something to monitor than worry about.
All in, Amazon looks more balanced than it has for some time. AWS has regained momentum, retail is executing well, and advertising continues to strengthen the profit mix. The strong reaction to the results brings the earnings multiple to around 28x, a level we think is sustainable, though no longer in the lower-hanging-fruit bucket. We still see upside driven by earnings growth, but questions around the scale of this investment cycle are likely to resurface sooner rather than later.
Environmental, social and governance risk
The technology sector is generally medium/low risk in terms of ESG, though some segments are more exposed, like Electronic Components (environmental risks) and data monetisers (social risks). Business ethics tend to be a material risk within the tech sector, ranging from anti-competitive practices to intellectual property rights. Other key risks include labour relations, data privacy, product governance and resource use.
According to Sustainalytics, Amazon’s overall management of material ESG issues is strong.
There are no significant ongoing risk events, and ESG reporting is fully aligned with industry best practice. Amazon provides good detail on how it manages major business risks, including data privacy, cybersecurity and human rights across its supply chain. However, think there is scope for stronger oversight of the environmental and social impact of its products, as well as how it manages water use.
The author holds shares in Amazon.
Amazon key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.