Amazon’s second-quarter earnings report ignited Wall Street’s confidence, primarily due to the exceptional performance of its cloud division, AWS, which saw 37% year-over-year growth. Analysts are increasingly optimistic about Amazon’s AI strategy, with many reiterating buy ratings and hiking price targets, citing AWS’s re-accelerating growth, expanding margins, and robust backlog.

Despite a slight dip in future revenue guidance, the company’s clear framework for data center returns and the strong demand for AI services, evidenced by AWS’s $496 billion backlog, have reassured investors about its substantial capital expenditures and future profitability.

AWS' Cloud Dominance Fuels Wall Street's Confidence in Amazon's AI Strategy

By Michael Bloom

Wall Street –

Amazon's recent earnings report has sent waves of optimism through Wall Street, largely driven by the stellar performance of its cloud computing division, Amazon Web Services (AWS). Shares of Amazon surged 11% following the release of its second-quarter results, which showcased AWS growth exceeding expectations at 37% year over year, surpassing the anticipated 31%.

Both AWS and Amazon's advertising business reported revenues that outperformed market predictions. CEO Andy Jassy highlighted that AWS growth is "booming," marking the fastest expansion since 2021, and noted that the AWS backlog has reached an impressive $496 billion. This strong performance has prompted numerous Wall Street analysts to raise their price targets and maintain their buy ratings on Amazon stock.

"The market is rewarding evidence," stated Maria Ripps of Canaccord Genuity. "AWS is re-accelerating as margins expand, demand visibly outrunning capacity into 2027, and enterprise inference adoption is still early."

Analyst Mark Shmulik from Bernstein believes AWS has reached a critical growth inflection point, positioning Amazon at the forefront of the artificial intelligence cloud race. Despite a slightly weaker-than-expected revenue guidance for the current quarter ($197 billion to $202 billion, against an expected $204.1 billion), attributed to the timing of "Prime Day," Amazon's capital expenditures also saw an increase. The company reported $54.21 billion in the quarter, a 68% year-over-year rise, with projections for 2026 capital expenditures to reach $220 billion.

While other tech giants have faced investor concerns over high capital expenditures with uncertain returns, Amazon appears to have assuaged these fears. "Management provided a much-needed framework on data center returns, with buildings having a 30yr life, server & networking assets having payback periods of less than 3yrs, and then strong returns over the remaining 3yr useful lives," explained Bank of America analyst Justin Post. This clarity on return on investment for its significant infrastructure spending has bolstered analyst confidence.

Analyst Reactions:

Baird: Reiterated an Outperform rating with a $300 price target, citing strong AWS acceleration, market share gains in e-commerce, and scaling margins.
UBS: Maintained a Buy rating with a price target of $318 (up from $305), highlighting the $25 billion in AI ARR for AWS and the substantial backlog as indicators of accelerating enterprise demand for AI services.
Bank of America: Kept a Buy rating and raised the price target to $320 (from $310), emphasizing Amazon's improved AI positioning, rapid capacity additions, and the potential for high returns on its expanding asset base.
Bernstein: Maintained an Outperform rating with a $320 price target (up from $315), noting clear commentary on capital expenditure returns and a focus on data center build-outs with short payback periods for server investments.
Oppenheimer: Issued an Outperform rating with a $320 price target, pointing to strong AWS margins ahead of expectations and significant sequential growth.
Canaccord Genuity: Kept a Buy rating with a $330 price target, underscoring the management's capital framework for AI investments, including contracted capacity and short payback periods.
RBC Capital Markets: Maintained an Outperform rating and raised the price target to $330 (from $320), suggesting that the AWS inflection point is arriving and validating its initial thesis on AI infrastructure.
Morgan Stanley: Kept an Overweight rating with a $335 price target, viewing the increased AWS backlog as a key indicator of durable multi-year growth.
Truist: Maintained a Buy rating with a $350 price target (up from $320), positioning Amazon as a prime investment in the secular growth of AI, Cloud, E-commerce, and Ads.
Citi: Kept a Buy rating and raised the price target to $350 (from $325), noting the impressive expansion of AWS margins and structural benefits driving growth.
Barclays: Maintained an Overweight rating with a $365 price target (up from $330), attributing AWS's strength to scale, custom silicon, and software optimization, alongside retail market share gains.
JPMorgan: Kept an Overweight rating with a $365 price target (up from $330), emphasizing the compelling return on investment for AI infrastructure and projecting strong AWS growth.
Goldman Sachs: Maintained a Buy rating with a $375 price target (up from $335), reiterating its view that Amazon is well-positioned for sustained revenue growth and margin expansion through critical long-term investments.

The consensus among analysts is that Amazon's strategic investments in AI infrastructure, particularly through AWS, are paying off, positioning the company for significant future growth and outperformance.