Amazon posted its strongest quarter in years. Revenue climbed 17% to $181.5 billion, smashing estimates by over $4 billion. Earnings per share hit $2.78, more than double the $1.64 consensus. But strip away a $16.8 billion accounting gain from its Anthropic stake, and the picture sharpens: AWS is roaring back, fueled by AI demand that outstrips supply.
AWS revenue jumped 28% to $37.6 billion—the fastest growth in over three years, up from 24% last quarter. Operating income reached $14.2 billion, topping the $12.8 billion forecast. CEO Andy Jassy put it bluntly: “AWS demand continues to outpace supply, with the backlog growing as enterprise customers commit to multi-year cloud and AI contracts.” Backlog now stands at $364 billion, excluding fresh multibillion-dollar pacts like Anthropic’s $100 billion-plus deal.
Custom chips tell the real story. Trainium and Graviton now pull in over $20 billion annualized, growing triple digits. Jassy calls it “potentially a $50 billion annual business if sold on the open market.” Trainium2 is sold out. Trainium3 ships early 2026, nearly fully booked. Uber runs Trainium. Meta inked a multibillion-dollar Graviton5 contract. Over 2.1 million AI chips deployed in the past year—half Trainium, cracking Nvidia’s grip. Another million Nvidia GPUs slated for 2026.
Bedrock, Amazon’s AI platform, processed more tokens in Q1 alone than in all prior years combined. Customer spend there surged 170% quarter-over-quarter. OpenAI just landed on Bedrock. Anthropic’s five-gigawatt Trainium deal locks in massive capacity.
Advertising added $17.2 billion, up 24%. North America revenue: $104.1 billion, up 12%, with $8.3 billion operating income. International: $39.8 billion, up 19%, $1.4 billion income. Total operating income, sans Anthropic gain: $23.9 billion.
Then the catches. Capex exploded to $44.2 billion, part of a $200 billion 2026 pledge—the biggest among hyperscalers. Trailing twelve-month free cash flow cratered 95% to $1.2 billion. Morgan Stanley sees negative $17 billion FCF next year. BofA pegs it at negative $28 billion. Cash and equivalents sit at $143.1 billion, bolstered by March debt issuances.
Anthropic’s Valuation Boom—and the Accounting Trick
Amazon’s $8 billion in Anthropic—part of a $25 billion commitment—revalued to over $70 billion. That’s a $16.8 billion pre-tax gain from swapping notes for preferred stock in Anthropic’s latest round. Secondary markets price Anthropic at $1 trillion. IPO whispers point to October. More than half the net income beat traces to this non-cash windfall. Net income doubled to $30.3 billion from $17.1 billion a year ago.
Q2 guidance: revenue $194 billion to $199 billion. Operating income $20 billion to $24 billion, baking in $1 billion from Project Kuiper. Tariffs flagged as a retail risk.
Wall Street cheered. Shares rose post-earnings, trading around $268. Analysts like TD Cowen’s $350 target look tame amid AWS reacceleration. X chatter echoes this: “AWS, which is the real investment case here, just re-accelerated to 28% growth,” posted @wealthyfranklin. Another: “AI-driven cloud momentum remains extremely strong. Long-term bullish,” from @Hale_yess.
But cash burn looms. Free cash flow compression underscores the bet: spend big on AI data centers now, harvest later. Custom silicon chips away at Nvidia dependence. Bedrock’s token boom proves enterprise AI takeoff. If demand holds—and supply catches up—AWS could dominate inference, the next phase after training hype.
Amazon isn’t alone. Alphabet books similar gains on private AI bets. Yet Amazon’s vertical stack—chips, cloud, models—positions it sharply against Azure and Google Cloud. Capex wars rage. Winners build moats fastest.
Strip the noise. AWS margins hit 37.7%. Revenue base balloons. AI contracts lock in years of growth. Free cash flow? A temporary dip. The real question: Can Amazon turn infrastructure into sustained pricing power before rivals flood the market?
For now, the answer hides in that $364 billion backlog. And the chips churning beneath it.
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