Amazon (AMZN) Q2 FY26 Earnings Call Transcript

Operator00:00

Good day, everyone, and welcome to the Amazon.com quarter two 2026 financial results teleconference. At this time, all participants are in a listen only mode. After the presentation, we will conduct a question and answer session.

Operator00:10

Today's call is being recorded. And for opening remarks, I'll be turning the call over to the Vice President of Investor Relations, Mister Dave Fildes. Thank you, sir. Please go ahead.

Dave Fildes00:29

Hello, and welcome to our Q2 2026 financial results conference call. Joining us today to answer your questions is Andy Jassy, our CEO, and Brian Olsavsky, our CFO. As you listen to today's conference call, we encourage you to have our press release in front of you, which includes our financial results as well as metrics and commentary on the quarter.

Dave Fildes00:45

Please note, unless otherwise stated, all comparisons in this call will be against our results for the comparable period of 2025. Our comments and responses to your questions reflect management's views as of today, July 30th, 2026 only, and will include forward-looking statements.

Dave Fildes00:47

Actual results may differ materially.

Dave Fildes00:59

Additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC, including our most recent annual report on Form 10-K and subsequent filings.

Dave Fildes01:17

During this call, we may discuss certain non-GAAP financial measures. In our press release, slides accompanying this webcast, and our filings with the SEC, each of which is posted on our IR website, you will find additional disclosures regarding these non-GAAP measures, including reconciliations of these measures with comparable GAAP measures.

Dave Fildes01:44

Our guidance incorporates the order trends that we've seen to date and what we believe today to be appropriate assumptions. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates and energy prices, changes in global economic and geopolitical conditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending, including the impact of recessionary fears.

Dave Fildes01:57

Inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies and the various factors detailed in our filings with the SEC.

Dave Fildes02:10

Our guidance assumes among other things that we don't conclude any additional business acquisitions or restructurings or legal settlements. It's not possible to accurately predict demand for our goods and services and therefore our actual results could differ materially from our guidance.

Dave Fildes02:12

And now I'll turn the call over to Andy.

Prepared remarks

Andy Jassy02:24

Thanks, Dave. We're recording 200.6 billion dollars in revenue up 20% year over year. Operating income was 27.5 billion dollars up 43% year over year.

Andy Jassy02:38

Q2 was another very strong quarter for Amazon. I'll start with AWS, which is booming right now and I'll share the numbers, what we think's going on and why we're enthusiastic about the ROIC equation even with heavy capex next few years.

Andy Jassy02:45

First, the numbers. Revenue growth of 36.7% year over year accelerating for the fifth straight quarter.

Andy Jassy03:04

Our fastest growth in 18 quarters back when AWS was less than half its current revenue size. We added over 4.6 billion in revenue quarter over quarter about 80% more than our largest increase ever and our backlog stands at 496 billion dollars growing triple digits year over year.

Andy Jassy03:16

AWS is now a 169 billion dollar annualized revenue run rate business which for perspective would place it 24th on the Fortune 500 list if it was a standalone company.

Andy Jassy03:24

Our chips business now has an annual revenue run rate of over $25 billion growing triple digit percentages year over year.

Andy Jassy03:33

Our AI revenue run rate climbed significantly quarter over quarter has now also over $25 billion growing triple digit percentages year over year.

Andy Jassy03:49

Customers choose AWS because we offer the broadest capabilities they want their AI inference to reside near their other applications and data and more of it resides in AWS than anywhere else and because AWS is the strongest security and operational performance.

Andy Jassy04:14

We're seeing strong growth across both AI and non-AI what we call core and growth in one is driving growth in the other. Growth in AI drives core because post training reinforcement learning and agent tool use is mostly done on CPUs versus AI accelerators This is an advantage for AWS as our Graviton chip is the strongest CPU chip offering up to 30 to 40% better price performance than other options.

Andy Jassy04:27

You need a place to store this AI data and to run vector databases, which are also emblematic of a meaningful edge for AWS because we have the broadest and most capable functionality by a fair bit in these core infrastructure areas.

Andy Jassy04:31

We feel similarly about the AI stack top to bottom.

Andy Jassy04:46

We have a unique offering that customers are excited about as we've been saying for 18 months now technically competent companies are going to build their own foundation models not the really big frontier models but smaller models that leverage their proprietary data.

Andy Jassy04:57

There's no easier service for this than our SageMaker AI service. Customers also need a high performance cost effective inference service and that's what Amazon Bedrock provides.

Andy Jassy05:08

Bedrock not only provides the best selection of leading models at superior performance and with the governance and security controls that companies need it's also continuing to grow incredibly quickly.

Andy Jassy05:16

In addition to leading model building and inference services customers need easier ways to build run and leverage agents.

Andy Jassy05:33

For example even after you've built an agent you have a lot of muck to worry about a production agent needs somewhere secure to run memory so it holds context an identity so it can act on a user's behalf, tools and data to connect to, and a way to watch what it's doing once real traffic hits.

Andy Jassy06:07

Stitching all that together reliably is hard. And it's stalled many production deployments. It's why we've built Bedrock Agent Core. It provides those building blocks as managed infrastructure and our teams keep iterating, recently adding features like policies which give companies deterministic controls over what agents can do, payments so agents can execute transactions autonomously, web search to ground agents knowledge without having to leave AWS and a new harness that further speeds up how fast customers can put this all together including creating the agent with strands.

Andy Jassy06:29

While companies will construct their own purpose built agents from the ground up most will also use turnkey agentic services coding agents are a good example and there are several successful ones including Cloud Code, CodeX and our own spec driven Kiro which is up to 50% more cost effective than others and tripled in usage quarter over quarter.

Andy Jassy06:42

Another of these agentic services is Amazon Quick, an intelligent AI work companion that helps you manage, search, and automate your digital workload across email, calendar, local or cloud files, and custom workflows.

Andy Jassy06:52

Unlike other offerings in this space, Quick also lets you manage across leading SaaS tools like Slack, Salesforce, Jira, Teams, and ServiceNow.

Andy Jassy07:45

Quick enforces a company's existing access controls so each person sees only what they're cleared to see and then it takes action scheduling meetings drafting and sending email updating a CRM record building a dashboard and more in Q2 we made Quick even more capable adding autonomous agents that customers set up in plain language to run continuously in the background and carry out multi-step tasks a personalized activity feed that pulls email messages calendars and tasks into one prioritized view and 16 new integrations including Adobe Moody's and Snowflake Quick has momentum with 3M Allianz AstraZeneca Autodesk BMW Exxon FINRA Hyundai Intuit Mondelez Moody's the NBA the NFL New York Life Insurance and Southwest Airlines all using it

Andy Jassy08:07

We also have agentic services like Amazon Connect, our call center service, and AWS Transform, which automates software migration growing quickly. I'll mention one more that I'm excited about, as frontier models get increasingly powerful, they're making it easier to find security vulnerabilities and technical applications many of which humans haven't found.

Andy Jassy08:18

This is obviously concerning for companies that protect important data. We recently released AWS Continuum, which discovers, prioritizes, validates, and remediates code vulnerabilities.

Andy Jassy08:27

It starts by ingesting the backlog of vulnerabilities a team already has and then leverages the new frontier models to run comprehensive scans.

Andy Jassy08:39

Continuum uses agents in each company's own business context to prioritize what matters, reasoning through questions like, is the affected component deployed? Is it reachable? Is it in a production path?

Andy Jassy08:57

And what's the impact if it's exploited? It then validates vulnerabilities in a sandbox so teams aren't chasing false positives and finally it recommends the fix. It's hard to talk with enterprises about AI right now without their mentioning security and we expect Continuum to grow quickly.

Andy Jassy09:39

I mentioned earlier that our chips revenue run rate is now over $25 billion we're unusually well positioned for this AI inflection given our leading price performance chips in both AI with Tranium and CPU with Graviton In addition to the two leading AI labs in the world and Anthropic and OpenAI making multi-year, multi-gigawatt commitments to Tranium an increasing number of AI startups are also adopting Tranium including unicorns like Neural Robotics and Odyssey joining startups like 12 Labs, Descartes, Poolside, Karakuri, Metagenomy, Netto AI and Splash Music and larger companies like Uber and Pinterest all adopting Tranium.

Andy Jassy09:53

Graviton is used by 98% of our top 1000 EC2 customers the revenue commitments have increased nearly three times quarter over quarter and Graviton 5 is growing nearly 2x faster as Graviton 4 did.

Andy Jassy10:08

We also continue to have a deep partnership with NVIDIA and will continue making AWS the best place to run NVIDIA chips as we have customers who will run on NVIDIA for as long as we can foresee and we believe strongly that customers want choice.

Andy Jassy10:27

Choice is good for customers, competition, and driving the cost of inference down, which customers care deeply about. Let me talk for a second about how we see this investment playing out. Earlier this year, we said we plan to invest approximately $200 billion in cash capex in 2026, the majority of which to support AI and AWS.

Andy Jassy10:42

At this level of spend and higher, we have clear line of sight to strong financial returns. I'll explain why. There are two major parts of the investment. The data centers and the servers and networking equipment that go into them.

Andy Jassy11:02

These have different capital cycles. Data center capital is spent starting two years before we can put servers into them to start monetizing. Once a data center opens with servers plugged in, we start generating significant revenue right away and then get to monetize these data centers for 30 plus years without having to spend that startup capital again.

Andy Jassy11:14

Servers and networking equipment operate on a shorter cycle. We typically purchase these a few months before putting them into service, so we have strong visibility into customer demand before we trigger the spend.

Andy Jassy11:27

If the demand isn't there, we won't spend the capital. For servers and networking equipment, on average, it takes a little less than three years to break even on that investment. The servers currently have a useful life of at least five to six years.

Andy Jassy11:40

And most of our AI capacity these days is being contracted for at least five year terms, that means that we're driving significant free cash flow on the servers and networking equipment in the two to three years after we break even.

Andy Jassy11:53

It's also worth noting that AWS has a strong track record of pulling forward break evens on server equipment where we've already made meaningful progress and finding ways to extend the useful life of this equipment without sacrificing customer experience.

Andy Jassy12:13

So for our data centers, which have 30 plus year useful lives, we should get at least five to six generations of server economics like I explained earlier, with subsequent generations after the first having even better overall economics because we don't have to repeat that upfront data center investment I mentioned earlier.

Andy Jassy12:31

This means in the short term, when demand is necessitating so many data centers being built simultaneously in advance of when we can start monetizing them, we'll spend a lot of capex and encounter free cash flow headwinds until these data centers come online can be monetized and we get a few years into these servers being utilized.

Andy Jassy12:44

But as we get a few years out, and the revenue growth outpaces the incremental capex growth, which will happen at some point, the resulting revenue, free cash flow, and return on invested capital is very compelling.

Andy Jassy12:59

We've done this before in the first era of cloud computing just over a longer time horizon where demand built more gradually than it has in AI. But we see the margins and returns in AI tracking what we saw with Core at the same point of evolution, actually a little ahead.

Andy Jassy13:10

We now believe we will spend approximately $220 billion in cash capex in 2026, the higher cost of memory pushing this number up from our prior estimate of about 200 billion.

Andy Jassy13:21

But even at that amount, we will still not have enough capacity to meet all the demand we have in 2026. And I believe this dynamic will also be true in 2027 too.

Andy Jassy13:30

In fact, the demand we already have for 2028 is striking and remember enterprises are still very early in using inference at scale in their current production applications.

Andy Jassy13:46

We've long believed AWS could become a few hundred billion dollar revenue business and now believe it'll be at least double that and very possibly be a trillion dollar annual revenue business for us in time with very appealing accompanying free cash flow and return on invested capital.

Andy Jassy13:48

I'll now turn to stores.

Andy Jassy14:04

We added millions of new products to our selection including over 700,000 from notable brands. we also expanded ultra low price selection on Amazon Hall in the US by nearly 20x since launch and now have over 6 million items priced under $10.

Andy Jassy14:23

We continue offering everyday low prices that meet or beat our competitors as well as deep discounts and savings during sales events. We're pleased with the customer response to Prime Day where customers shop millions of deals including more than 80% at our lowest price of the year and hundreds of thousands discounted by 40% or more.

Andy Jassy14:47

We're the second largest grocer in the US and our grocery business continues growing quickly across perishables and non-perishables. The number of monthly active perishables customers grew over 50% since the start of the year, same day orders with perishables average over 3x more units per order and fresh groceries now make up six of the top 20 best sellers on Amazon.com.

Andy Jassy15:05

We grew the number of new customers for Amazon pharmacy by more than 2x in the first six months of the year and same day prescription deliveries nearly 5x. We also save customers nearly $250 million so far this year in out of pocket costs up more than 400% year over year.

Andy Jassy15:24

We continue speeding up overall delivery and once again achieved record delivery speeds for customers in the first half of the year. We offer millions of items for same day delivery with Prime up to 40 times more selection than a typical big box retail store and our same day network continues to expand.

Andy Jassy15:32

Globally we delivered over 40% more items same day or overnight in the first six months of the year than the same period last year.

Andy Jassy15:41

We also continue to expand our ultra fast service Amazon Now which offers delivery in 30 minutes or less on thousands of everyday essentials.

Andy Jassy15:53

We added 80 new cities and towns across the US and several major cities in Egypt in Q2 and Amazon Now is available in nine countries and over 250 cities and towns globally.

Andy Jassy16:04

We continue to see strong customer response with over 80% growth in gross sales and units sold quarter over quarter and we served over 60% more customers quarter over quarter.

Andy Jassy16:15

We recently launched Amazon Supply Chain Services so any business can move, store, and deliver everything from raw materials to finished products using the same supply chain that supports Amazon.

Andy Jassy16:22

And we already have several large customers including Procter & Gamble, 3M, Land's End, and American Eagle Outfitters.

Andy Jassy16:40

The stores team also continues to innovate and deliver for customers with AI. Customers love Alexa for shopping, our agentic AI shopping assistant, it offers personalized recommendations, product comparisons, price history, and the ability to automate shopping through features like price alerts and auto buy.

Andy Jassy16:52

Over 350 million customers have used it in the last 12 months and engagement accelerated in Q2 with active users nearly doubling and interactions up over 5x year over year.

Andy Jassy16:57

We also expanded Amazon Lens which lets customers take a photo of anything they see

Andy Jassy17:05

And instantly find the same or similar items on Amazon to 10 additional countries it's now available in 21 countries around the world.

Andy Jassy17:15

Moving on to Amazon Ads we saw strong growth across our offerings generating 19.8 billion dollars of revenue up 26% year over year.

Andy Jassy17:30

Sponsored products continues to be our largest offering and a key driver of growth. Additionally, increasingly more shoppers are discovering products in our agentic and conversational experiences including in Alexa Plus and Alexa for shopping.

Andy Jassy17:39

Shoppers who click a sponsored prompt convert to a sale 48% more often and spend 21% more on average than those who don't.

Andy Jassy17:53

We see continued growth and engagement in Prime Video ads and live sports. We introduced more than 30 new advertisers to the NBA in our first year and inventory on Thursday Night Football, NBA, WNBA, and NASCAR all sold out.

Andy Jassy18:11

Advertisers are increasingly investing in multi-sport strategies with brands activating across multiple sports, seeing 2.3 times higher unduplicated reach compared to single sport advertisers and multi-sport viewers are driving 12% higher spend and 17% more orders on Amazon.

Andy Jassy18:38

And finally, we make it easy to create, launch, and optimize full funnel campaigns using AI powered tools including Ads Agent which turns hours of setup and targeting into minutes Advertisers using Ads Agent targeting see 8% lower cost per impression and 6% lower cost per acquisition and we've expanded it to 11 new countries this year We're also continuing to see momentum in several other areas and I'll mention just a few.

Andy Jassy20:07

Starting with entertainment, the inaugural season of NBA on Prime Video delivered strong viewership with a peak of 6.5 million US viewers for game seven of the Eastern Conference semifinals outperforming game seven on broadcast a year ago In Europe viewership in the NBA more than doubled year over year on Prime Video with the highest average viewership on record We also drew 36 million viewers globally for the series premiere of Off Campus on Prime Video in its first 12 days becoming Prime Video's number three top viewed series debut ever Alexa Plus expanded to Germany, Austria, France, and Brazil and hundreds of millions of customers are using new Alexa experiences We find that everywhere Alexa goes it drives momentum for the business for example in the US customers who use Alexa for shopping spend an average of over 40% more per order than those who don't and customers who've tried Alexa Plus are signing up for Prime at nearly 25% higher rates And finally, Amazon Leo is close to 400 satellites in orbit enough to begin initial satellite internet service this year we already have meaningful revenue commitments from enterprises and government customers and we have more than 20 partners who will extend the reach of our network across the globe we continue to be in the middle of some of the biggest inflections of our lifetime and we're building multiple new long-term businesses that will make customers lives better and easier and lead to substantial free cash flow and return invested capital for our shareholders and business.

Andy Jassy20:11

With that I'll turn it over to Brian.

Brian Olsavsky20:21

Thanks Andy. Starting with our top line financial results worldwide revenue was $200.6 billion a 20% increase year over year excluding the impact of foreign exchange.

Brian Olsavsky20:41

These results include the timing shift of Prime Day into Q2 for most of our largest countries including the United States. In Q2 we reported worldwide operating income of $27.5 billion This includes the benefit from two items that reduced expenses by approximately $1.2 billion during the quarter.

Brian Olsavsky20:54

First, we received tariff related refunds of approximately $600 million. This is included in our North America segment and represents the significant majority of refunds we expect to receive.

Brian Olsavsky21:05

Second, we recorded a separate benefit of approximately $600 million related to the change in fair value measurement of energy contracts subject to derivative accounting.

Brian Olsavsky21:14

This primarily impacts the AWS segment. These energy contracts are to secure electricity supply for existing and future operations.

Brian Olsavsky21:32

Certain terms in these contracts cause them to be subject to derivative accounting. Derivatives are measured at fair value each reporting period and changes in fair value measurements will create unrealized gains and losses recorded within operating expenses on our statements of operations.

Brian Olsavsky21:49

While the impact of these fair value measurements can vary, these adjustments have not been significant in prior quarters. Moving on to our segment results, in the North America segment, second quarter revenue was $116.2 billion, an increase of 16% year over year.

Brian Olsavsky21:58

International segment revenue was $42.2 billion, an increase of 15% year over year, excluding the impact of foreign exchange.

Brian Olsavsky22:02

Worldwide paid units grew 17% year over year.

Brian Olsavsky22:19

Prime remains a key pillar of our business and our double digit year over year membership growth reflects the value our offerings deliver at scale. We saw broad based momentum across the inputs that drive our customer experience including new selection, sharp prices and fast delivery.

Brian Olsavsky22:48

Shifting to profitability, North America segment operating income was $9.1 billion with an operating margin of 7.9%. International segment operating income was $1.7 billion with an operating margin of 4.1%. In our fulfillment network, we've made progress optimizing inventory placement shortening shipping distances reducing touches per package and improving consolidation rates.

Brian Olsavsky23:05

We're expanding our deployment of robotics and automation which have been integral to our operations for decades. We're retrofitting our facilities with our latest generation technology and we expect to more than double our fleet of robotic arms like Cardinal and Sparrow in 2026.

Brian Olsavsky23:19

We continue to lower our overall cost to serve even as we face heightened transportation costs driven by fuel inflation from the conflict in the Middle East and higher line haul rates from driver capacity limitations.

Brian Olsavsky23:30

Excluding the impact of higher fuel and line haul rates, shipping costs grew more slowly than worldwide unit growth at a pace that is relatively consistent with last quarter.

Brian Olsavsky23:39

On the operating income side, the impact of these higher costs is partially offset by our FBA fuel and logistics surcharge that was implemented in April.

Brian Olsavsky23:49

Looking ahead, we see meaningful opportunities to further enhance productivity across our global fulfillment network, all while continuing to raise the bar in delivery speed.

Brian Olsavsky23:59

While our operating margin may fluctuate and progress may not always be linear, we take a deliberate approach to achieving sustained long-term improvement in our cost to serve.

Brian Olsavsky24:10

Moving to the AWS segment, revenue was $42.2 billion, up 36.7% year over year, driven by both core and AI services.

Brian Olsavsky24:22

AWS now has an annualized revenue run rate of $169 billion. Customers continue to increase cloud migrations and scale up their use of AWS core services.

Brian Olsavsky24:28

And increasingly, customers seeking the full benefits of AI are accelerating their transition to the cloud.

Brian Olsavsky24:47

We see a strong linkage between AI spend and core growth as customers invest in AI we see core spending increase in core consumption we expect this relationship to strengthen over time as more AI workloads move into full scale production and drive additional demand for our core services.

Brian Olsavsky24:56

AWS operating income was 16.6 billion dollars which reflects our strong growth coupled with our focus on driving efficiencies across the business.

Brian Olsavsky25:08

Our investments in software and process improvements optimize server capacity and help to develop a more efficient network using our lower cost custom silicon and custom network gear.

Brian Olsavsky25:20

Now turning to our cash capex. which is $53.1 billion in Q2. This primarily relates to AWS and generative AI as we invest to support strong customer demand.

Brian Olsavsky25:31

We'll continue to make significant investments especially in generative AI as we believe it to be a massive opportunity with the potential to drive long-term revenue and free cash flow.

Brian Olsavsky25:38

Before moving on to guidance, I'll briefly touch on the impact from the tariff related refunds on our results.

Brian Olsavsky26:12

We are participating in the tariff refund process and as I mentioned earlier we received approximately $600 million in Q2 the amount is limited for a couple of reasons first our teams did a lot of work forward buying and pre-positioning inventory to avoid tariff costs second we are not the importer of record for the large majority of items sold in our store given suppliers typically handle imports and pay relevant tariffs In cases where we did see an increase in cost due to tariffs, we largely absorbed these costs rather than pass them on to customers.

Brian Olsavsky26:24

You can see that in how we stayed very sharp in our price throughout the last year. With our product prices on average 14% less than other retailers according to third party research firm Profitero.

Brian Olsavsky26:40

We've identified a limited set of circumstances where we can trace that we pass specific import charges on to customers and when we receive those refunds we will proactively contact affected customers and automatically issue refunds to them.

Brian Olsavsky26:46

Otherwise like other large retailers we'll utilize refunds continue to invest in low prices for customers.

Brian Olsavsky26:56

I'll finish with our financial guidance. Q3 net sales are expected to be between 197 billion dollars and 202 billion dollars.

Brian Olsavsky27:12

I'll call out two areas that are driving the sequential deceleration in net sales growth from Q2 to Q3. First, Prime Day timing shifted this year with the sales event occurring in Q2 for most of our large countries including the US.

Brian Olsavsky27:26

In 2025 Prime Day was entirely in Q3 Excluding the impact of Prime Day in both 2025 and 2026 third quarter 2026 year over year growth would have been nearly 400 basis points higher.

Brian Olsavsky27:46

We recognize that the timing shift of Prime Day creates some noise in the modeling of our financial results However, after adjusting for Prime Day, as we look across our stores business heading into Q3, we see strong customer engagement, growth, and a continuation of the trends that we have seen in the first half of the year.

Brian Olsavsky27:56

Second, the Q3 guidance anticipates an unfavorable impact of approximately 80 basis points from the year over year changes in foreign exchange rates based on current rates.

Brian Olsavsky28:03

Q3 operating income is expected to be between $22.5 billion and $26.5 billion.

Brian Olsavsky28:09

I want to thank our teams across the company for their hard work and focus on customers.

Brian Olsavsky28:22

We'll continue to work to deliver more value to the broad range of customers we serve across each of our businesses. which is the only reliable way to create lasting value for our shareholders. With that, let's move on to your questions.

Operator28:34

Thank you. At this time, we will now open the call up for questions. We ask each caller to please limit yourself to one question. If you would like to ask a question, please press star one on your keypad.

Unidentified speaker28:46

We ask that when you pose your question, you pick up your handset to provide optimum sound quality. Once again, to initiate a question, please press star then one on your touchtone telephone at this time.

Operator28:49

Please hold while we poll for questions.

Questions and answers

Operator28:57

And the first question comes from the line of Doug Anmuth with JPMorgan. Please proceed.

Doug Anmuth29:06

Great. Thanks for taking the questions. Um just one for Brian one for Andy. Um Brian many of assume that AI workloads would be lower margin at least near term.

Doug Anmuth29:30

Um can you just talk about the drivers of the 39% AWS operating margin in 2Q and just how we should think about sustainability and then Andy strong bedrock traction with customers spending more in the quarter than in all the prior quarters combined but when you think about the full stack offering, does Amazon need its own leading model toward the frontier?

Brian Olsavsky29:31

Thank you.

Brian Olsavsky29:43

Doug, let me start with the first question. Yes, we're pleased with the growth in both revenue and also margin expansion that we had in AWS in Q2, especially given the size of our business.

Brian Olsavsky29:57

You're seeing despite the large investments, AWS margins have continued to remain strong and we're up 650 basis points year over year. 520 basis points if you exclude the derivative accounting gain that I mentioned.

Brian Olsavsky30:29

You know we've said before these margins will fluctuate they're based on a number of factors including our investment levels mix of products mix of AI versus non-AI but I would say that the profitability you're seeing from AWS isn't random it's a result of disciplined efficiency gains capacity optimization which we benefited quite a bit from in Q2 and always closely managing our fixed costs. So again, they'll fluctuate, but very strong performance year over year and we'll take it.

Andy Jassy31:05

Yeah, I'll just add one other thing to what Brian said, which is as I mentioned in my opening comments, we see the AI business following very much the same type of margin trajectory that we saw in the core business before and it's a little bit ahead of that pace that we saw so we're optimistic about that on the question about Bedrock and our own frontier model so you know my view of it is that AWS and Amazon can have a wildly successful business without its own frontier model.

Andy Jassy31:26

And a lot of that is because there is not going to be one model to rule the world. You already see that right now. You see it it's not just Anthropic or it's not just OpenAI, you see increasingly more and more companies being interested in the open models as well and we have all of them in Bedrock and it's one of the many reasons why Bedrock is growing so quickly.

Andy Jassy32:24

If you're a company that's building important AI applications, you want to make sure that you have the ability to use all the available models. They're going to each leapfrog each other at different times. They're going to have lots of different models that actually are comparable in capabilities and you want that leading selection with the right price performance and with the right governance and security and there's nothing like Bedrock that provides that right now and you know we use those models as well all that said we are pursuing our own frontier model and we're doing it for a few reasons first of which is it just gives us additional control over cost for our own consumer applications but also we're trying to drive costs down for customers and having a player like ourselves it's always focused on trying take the price performance and the cost down for customers all the time we think will help keep the models more cost effective for customers.

Andy Jassy32:55

I think also it allows us to have more control over prioritization on what models focus on and we have both from our own external customers as well as our internal customers inside the company certain priorities that matter that we want the models trained especially well for and then it gives us some control on speed and so my view of it is that you know in the you know within the next few years you're going to have at least a half dozen models that are comparably good to each other they'll all be in bedrock and one of them will be ours

Operator33:03

Thank you. The next question comes from the line of Justin Post with Bank of America. Please proceed with your question.

Justin Post33:24

Great. Thank you. Um just thinking about the AWS acceleration is was that really driven by a lot of capacity coming online in the quarter you guys have been very more open than your peers on gigawatts you're adding any help you can give us on how much you might be adding the second half versus the first half and also how you're thinking about 27 thank you

Andy Jassy34:11

Yeah, I think that the there are several reasons for why we saw such significant growth and it's we're really pleased and excited you know fifth straight acceleration quarter largest acceleration in 18 quarters and I think there are several things that are driving it you know I think the first part is that customers are choosing AWS in part because it has the broadest functionality across both cloud core and AI in part because it has the strongest operational performance and security, and in part because as more and more companies are bringing their inference workloads to production, they want it to live near the rest of their workloads and data and so much more of it lives in AWS than anywhere else.

Andy Jassy34:41

I think there are you know a couple other things going on here on the core side I mean AI is obviously growing at a very rapid rate as we talked about you know well over 25 billion dollars in annual revenue run rate at this point but the core business is growing very quickly as well and I think there's at least a couple things at play one is that increasingly more enterprises are building their transformation plan to move from on-premises to the cloud.

Andy Jassy35:11

Remember, by the way, that 85% of the global IT spend is still on-premises. That equation is going to flip in the next 10 to 20 years and you see more and more enterprises that are moving and building plans to move to the cloud and we're winning the lion's share of those with the capabilities I mentioned earlier and the advantages and then AI is growing you know at such a rapid rate and it's pulling along core alongside of it you know and that's because the post training and the reinforcement learning and all the

Andy Jassy35:45

Agentic tool use is being driven on CPU and core and with the leading CPU chip and Graviton it makes AWS an even more attractive choice so yes we're adding a lot of capacity but there are a lot of other reasons why it's growing um you know I expect that we will you know we're on pace with the capacity build that we talked about a few quarters ago where we said we expect to have double the capacity power capacity by the end of 27 that we had in 25 and we continue to be on that track.

Operator35:52

Thank you. The next question comes from the line of Brian Nowak with Morgan Stanley. Please proceed with your question.

Brian Nowak36:42

Thanks for taking my questions. I have two Andy I appreciate the color on the long lived data centers investments versus the server and network investments just the question is as you sort of look into 2027 you look at the demand that's coming etc are you at a point where you're going to be able to start to slow that long lived data center spend at all in 27 or is that just too soon where you're still going to have to be opening up new data centers for the next two three four years as you look into 27 as number one second one in the past 90 days or so you've talked the company talked publicly about selling Tranium at some point to third party data centers how do you think about when you could do that and just sort of the ROIC on that versus core AWS loads

Andy Jassy38:54

Well, on the first question, Brian, we have so much demand right now you know apart from what we've talked about in 26 the you know the lion's share of capacity in 27 we're adding a lot of capacity as I mentioned just a few minutes ago is largely reserved and we have quite a bit of capacity it's already been reserved for 28 and so I think it's actually kind of useful to look at least our view of what we see in the demand and adoption curve right now which is we see this adoption curve in AI right now is very barbelled there is on one end of the barbell the AI labs are consuming gobs and gobs of compute and there are a few runaway successful generative AI applications like Claude Code and ChatGPT and on the other end of the barbell are enterprises who are getting real value from AI in cost avoidance and productivity and these are things like automating customer service or business process automation or fraud or things like that in the middle of the barbell is all of the current enterprise production workloads the some of which have are using inference in a pervasive way but most of which aren't and that is going to change very significantly over time and that will be in my opinion that will be the largest absolute segment you know the existing production workloads in the enterprise and new businesses and workloads that startups build too and so I think we're at the I think we're still in the relative early stages of how much demand there's going to be for AI I think it's going to change every customer experience that we know I think that will it will invent all sorts of new ones that we never imagined and you know I don't know if the trajectory of that middle part of the barbell will be the same wildly steep trajectory that we've seen with the current barbell AI labs piece but we have a lot of demand in front of us and we're going to invest in this business to continue to be the significant market segment leader that we are today.

Andy Jassy39:02

We think as I mentioned earlier it has the potential to be a trillion dollar revenue business for AWS and we intend on continuing to be the leaders.

Andy Jassy39:44

On the question about selling Tranium you know we're quite excited about what's happening in our chips business as I mentioned earlier it's over 25 billion dollars in annual revenue at this point we think we have the leading price performance chip in both the AI space with Tranium and in the CPU space with Graviton the fact that we have a multi-year multi gigawatt commitments from the two largest AI labs in Anthropic and OpenAI and more companies as I mentioned in my opening comments using Tranium is is exciting and promising and we have we just have

Andy Jassy40:07

Of demand for Tranium. And so, uh there are a lot of customers who are very excited about using it in the form that we're providing right now. We do have an increasing number of customers who are interested in us providing the Tranium chips to them um separate from you know even from our cloud and we're actively having those conversations and exploring and I expect there's a real chance we'll do that in the future.

Operator40:14

Thank you. The next question comes from the line of Colin Sebastian with Baird. Please proceed with your question.

Colin Sebastian40:46

Yeah, good afternoon. Thanks very much. Andy, is it fair to say that there's a more concerted effort to move into the application layer with Kiro and Transform and I guess more broadly plans for workplace productivity tools and do you see those as sort of providing a boost to the broader platform offering from infrastructure on up and then Brian, I mean just given the demand signals you guys are both talking about and plans for additional capacity, what are your current thoughts on sources of capital for the build out over the next couple of years? Thank you.

Andy Jassy41:08

Uh hi Colin let me take your second question first um you've seen us issue debt this year you know we have a lot of options available to us as we continue to fund this growth that we're seeing in AWS so we'll continue to look at you know all the options and at make the appropriate decision at the right time but nothing to share today

Andy Jassy41:26

And your first question Colin we see a very substantial opportunity both for our customers and for AWS in building some of these agentic applications. And some of this is born out of what customers tell us they wish they had and they want to be using.

Andy Jassy44:00

Some of it is born out of just needing to provide those capabilities to ourselves inside Amazon. And so you know Kiro which is our coding agentic coding service is an example that but Amazon Quick's a really interesting example where we just had so many people inside the company who wanted really an intelligent AI assistant to help them work to you know at first it started off with you know we're a very document oriented culture people wanted when they got documents not to have to read every document so carefully and to get a summary and then to be able to write their own analyses and responses to these things and to be able to do business intelligence through these agents and that's really how Amazon Quick started was to do research to do business intelligence to do summarization and then we had so many people inside the company using it that they said can't you actually find a way to make it much more productive and easier for us to manage our email to manage our Slack communications to manage our calendar and to use all those things together and that's really this next instantiation of Amazon Quick and as I mentioned in my opening comments it's pretty remarkable not only how fast it's taken off inside Amazon but how many external enterprises have put it into production with very large number of people at their companies and we see that opportunity up and down kind of the different needs at companies I think that Connect Amazon connect which is our call center service which is used by all five major leading airline providers as well as many of the leading banks and healthcare companies continues to grow very quickly AWS transform which makes it much easier to migrate software is super useful for enterprises and then the latest one we just launched with Continuum you know it's really hard to have a conversation with a large company about AI right now where they don't actually ask you about security with just all the noise and the hype about the security risk with the most current powerful models. And so Continuum really allows them to understand, to use those models productively to find their own vulnerabilities in their code to design the fixes and to help them deploy them. And you know those are kind of the first set of them they all have very high promise but there are several others that we're working on and we think that's going to be very helpful for customers and our business

Operator44:07

The next question comes from the line of Ken Gawrelski with Wells Fargo. Please proceed with your question.

Ken Gawrelski44:59

Thanks so much. Two, if I may. First your RPO reported is two and a half times that of the third quarter 25 when you gave us the doubling of capacity comments for year end 27 how does that the that RPO number and the massive expansion there impact your outlook for future capacity I know that you talked about through year end 27 but maybe at least qualitatively if you could touch upon what the RPO means for 28 and beyond capacity and then and second one related is you raised your capex guidance this year for some supply chain inflation could you talk about how your pricing strategy at AWS incorporates future cost inflation your longer term contracts allow for stable return profiles despite cost inflation thank you

Andy Jassy46:35

Yeah I'll start on the backlog number yeah it's to your point it's very substantially continuing to grow I think it's a reflection again of customers being very very enthusiastic about using AWS both across core and for AI we have taken in you know we know about that backlog obviously so that's all taken into account in our capex projections and you know over time I expect that we will continue to sign more deals with customers and as I mentioned earlier we're going to pursue the opportunity to continue being the significant market segment leader that we are on the second question on the supply chain inflation you know what I would say is that most of the deals that you sign other than you know there's a certain amount of your demand that is on demand where there aren't contracts but you know a large amount of it tends to be deals and agreements that you've signed and the deals that you signed you know those will be the prices and those will be the agreements that we have over the duration of that contract and new agreements that you assign, you always take into account what your costs are in how you ultimately build a price that you agree to with your customers and I I think it's no secret right now to any company in the world that there are inflated prices right now on some of the components like memory and hard drives and SSDs.

Operator46:43

Thank you. Our final question comes from the line of Eric Sheridan with Goldman Sachs. Please proceed with your question.

Eric Sheridan47:15

Thanks so much for taking the question. Maybe pivoting to the commerce business when you're talking about scaling some of your initiatives around fast commerce and a wider array of supply of groceries and everyday essentials can you talk a little bit about the signal you're getting from consumers in terms of either adoption rates of those services or what it's doing to overall spend trends and whether there's any countries or geographies where you're seeing different outcomes as you launch and scale some of those services thanks so much

Andy Jassy50:07

Yeah we are quite enthusiastic and excited about the pace with which we are growing the amount of everyday essentials as well as perishables in the business right now and you know I think some of that has to do with the broader selection we have and some of that has to do with just how fast our delivery has gotten over the last two to three years and when you can deliver items to people when you have that broad selection like we do at low prices and you can deliver that selection to people as fast as we are right now people consider you for a lot more of their total purchases and shopping visits. And you know we've talked for a while about grocery and we have a very large business in that space. It's you know last year was over 150 billion dollars in gross merchandise sales making us the second largest grocer in the US and you know a lot of that are non-perishables you know the middle aisles that you'd find in a grocery store where you have consumables and canned goods and beauty items and pharmaceutical items a big chunk of it is our Whole Foods Market business which is the leading organic grocer out there and if you look at the growth in geographies that Whole Foods Markets are in they're significantly outpacing the growth of comparable grocers and the profit trajectory continues to trend the right way as well and we found a new format there in Daily Shop in urban settings it's off to an amazing start that we're expanding very rapidly And then we always knew that if we wanted to serve the number of customers who want us to serve them and that we want to serve we had to find a way to offer mass brands and perishables in a significant way and we've tried lots of experiments over the last few years as we've talked about on this call for a few years but we have finally found something that is a real needle mover for us in offering perishables in our same day facilities that we're now able to offer same day perishables in 2300 cities around the US if you look in those cities nine of the top 10 best sellers in those geographies are perishables you know the number of monthly active perishable customers has increased 50% since the start of this year and for same day orders with perishables on average they average three times more units per order and so we're just seeing very significant traction in our everyday essentials and in our grocery items and we're not done experimenting by the way with other physical formats in the grocery side but we've hit on something with same day perishables in our same day facilities it's changing the trajectory of our everyday essentials business

Dave Fildes50:15

Thanks for joining us on the call today and for your questions. A replay will be available on our investor relations website for at least three months.

Dave Fildes50:19

We appreciate your interest in Amazon and look forward to speaking with you again next quarter