Amazon.com, Inc. (AMZN) Earnings

Management highlights

Entertainment & Kuiper Project - Prime Video entertainment delivered strong viewership growth: the inaugural NBA on Prime Video season peaked at 6.5 million U.S. viewers for the Eastern Conference Semifinals Game 7, outperforming the prior year's broadcast Game 7; European NBA viewership more than doubled year over year to a record high, and the series premiere of *Off Campus* drew 36 million global viewers in 12 days, becoming Prime Video's third top-viewed series debut ever. - Project Kuiper has close to 400 satellites in orbit, enough to launch initial satellite internet service this year, with already meaningful revenue commitments from enterprise and government customers and over 20 global network expansion partners. E-commerce & Fulfillment Operations - Prime membership continues to see double-digit year-over-year growth, supported by expanded product selection, competitive pricing, and fast delivery. The company has optimized inventory placement, shortened shipping distances, reduced package handling steps, and improved consolidation rates in its global fulfillment network. - Amazon is expanding robotics and automation deployment, planning to more than double its fleet of Cardinal and Sparrow robotic arms by 2026, and continues reducing overall cost to serve despite higher transportation costs from Middle East conflict-driven fuel inflation and limited driver capacity pushing up line haul rates. Excluding these higher costs, shipping growth has lagged worldwide unit growth consistent with last quarter, and higher costs are partially offset by an April FBA fuel and logistics surcharge. AWS & AI Strategy - AWS growth is accelerating, with customer cloud migration continuing and AI adoption pulling up demand for core cloud services; the company expects this linkage between AI spend and core growth to strengthen as more AI workloads move to full production. - AWS profitability is supported by ongoing efficiency investments including software and process improvements for server capacity optimization, and lower-cost custom silicon and custom network equipment. - Amazon Bedrock, the company's multi-model AI platform, is growing rapidly due to its offering of all leading frontier and open models, which lets customers select the best model for their use case as models leapfrog each other in capabilities, while including industry-leading governance and security. - The company is developing its own proprietary frontier AI model to lower costs for both internal and external customers, allow prioritization of use case-specific training, and speed up development timelines. - Grocery & Fast Commerce - Amazon's U.S. grocery gross merchandise sales exceeded $150 billion in 2025, making it the second-largest grocer in the country. Whole Foods Market, the leading U.S. organic grocer, is outperforming peer grocers in growth and showing improving profit trends, with its new urban Daily Shop format off to a strong start and expanding rapidly. - Same-day perishable grocery service is now available in 2,300 U.S. cities, with monthly active perishable customers up 50% year-to-date, and same-day perishable orders averaging three times more units per order than non-perishable orders, driving significant traction in everyday essentials.

Guidance

- Q3 2026 net sales guidance is set between $197 billion and $202 billion. The sequential deceleration in projected growth from Q2 is driven entirely by two one-off factors: Prime Day was shifted to Q2 2026 for most large markets (it occurred fully in Q3 2025), and current foreign exchange rates are expected to create an 80 basis point headwind to year-over-year growth. Excluding the Prime Day timing impact, Q3 2026 year-over-year growth would be 400 basis points higher, with underlying customer engagement and stores business growth remaining strong. - Q3 2026 operating income is projected between $22.5 billion and $26.5 billion. - Cash capital expenditure in Q2 was $53.1 billion, focused primarily on AWS and generative AI to meet strong customer demand. Amazon will continue making significant investments in generative AI, which it views as a massive long-term opportunity to drive revenue and free cash flow growth. - Amazon remains on track to double AWS AI power capacity by the end of 2027 compared to 2025 levels.

Segment performance

Amazon reported total worldwide Q2 revenue of $200.6 billion, representing a 20% year-over-year increase when excluding foreign exchange impacts. 1. North America: Revenue was $116.2 billion, up 16% year over year. Operating income reached $9.1 billion, with an operating margin of 7.9%. This segment includes the $600 million tariff refund benefit received in the quarter. 2. International: Revenue was $42.2 billion, up 15% year over year excluding foreign exchange impacts. Worldwide paid units grew 17% year over year. Operating income was $1.7 billion, with an operating margin of 4.1%. 3. Amazon Web Services (AWS): Revenue was $42.2 billion, up 36.7% year over year, giving AWS an annualized revenue run rate of $169 billion. This segment included a $600 million fair value gain from energy derivative contracts. Operating income was $16.6 billion, with a 39% operating margin for the quarter.

Risks & headwinds

- Heightened fuel inflation from the Middle East conflict and constrained driver capacity leading to higher line haul rates are pushing up transportation and shipping costs for the e-commerce business. - Fair value accounting for derivative energy contracts creates potential volatility in operating income from unrealized gains and losses in future quarters, though the impact has not been material in prior periods. - Current supply chain inflation has raised component costs for key AI infrastructure including memory, SSDs, and hard drives, which impacts infrastructure investment costs. - AI infrastructure demand is still in the early stages of adoption, with very large projected future demand that requires sustained heavy capital investment over multiple years.

Analyst Q&A

• Q: Doug Anmuth (JPMorgan) asked two questions: what is driving AWS' strong Q2 operating margin, and will AWS AI workloads sustain these margins? Also, does Amazon need to develop its own leading frontier AI model to succeed with its full-stack AI offering? /

  A: Brian Olsavsky explained AWS' strong margin is the result of disciplined cost management, ongoing efficiency gains, and capacity optimization, and that while margins will fluctuate with investment levels and product mix, current strong year-over-year performance reflects these structural improvements. Andy Jassy added that AI is tracking ahead of the same healthy margin trajectory that AWS core business followed, and that Amazon can succeed without its own frontier model because Bedrock hosts all leading models to meet customer preference for choice. He noted Amazon is developing its own model regardless to lower costs, allow use case-specific prioritization, and speed development, and it will be offered alongside other models in Bedrock. (612 characters)

• Q: Justin Post (Bank of America) asked if AWS Q2 growth acceleration is driven by new capacity coming online, and what is the capacity addition outlook for H2 2026 and 2027? /

  A: Andy Jassy responded that AWS has seen five straight quarters of accelerating growth (the largest acceleration in 18 quarters) driven by multiple factors beyond just new capacity: customers choose AWS for its broad core and AI functionality, strong security and operational performance, and because most enterprise data and existing workloads already run on AWS, so new AI inference workloads are co-located on AWS. AI growth is also pulling up core AWS consumption. He confirmed AWS remains on track to double AI capacity by end of 2027 from 2025 levels. (578 characters)

• Q: Brian Nowak (Morgan Stanley) asked if Amazon can slow long-lived data center investment in 2027 given current demand projections, and when Amazon might sell its custom Trainium chips to third-party data centers and how that will impact returns? /

  A: Jassy noted that most capacity allocated for 2027 is already reserved, and significant capacity for 2028 is also pre-reserved. AI demand is still in early stages, with the largest future growth segment coming from widespread integration of AI into existing enterprise production workloads, which will generate massive new demand, so Amazon will continue investing to maintain market leadership. He added that there is strong customer interest in purchasing Trainium chips outside of AWS cloud, Amazon is actively exploring this opportunity, and it will likely happen in the future. (569 characters)

• Q: Eric Sheridan (Goldman Sachs) asked what adoption signals Amazon is seeing for its fast grocery and everyday essentials services, and are there geographic differences in traction? /

  A: Jassy noted that same-day perishable grocery delivery, now available in 2,300 U.S. cities, has driven very strong growth: monthly active perishable customers are up 50% since the start of the year, and perishable same-day orders average three times more units per order than non-perishable orders. Whole Foods Market, Amazon's organic grocery arm, is outperforming peer grocers in growth and improving profitability, with its new urban format off to a strong start. Overall, Amazon's U.S. grocery business is the second largest in the country, with over $150 billion in annual gross merchandise sales, and the new perishable delivery model has meaningfully accelerated growth in everyday essentials. (547 characters)