Amazon crossed the $3 trillion market valuation milestone for the first time on Monday, with shares climbing more than 4% to record their best-ever day since early May, extending its year-to-date gain to more than 23%. The Seattle-based e-commerce and cloud-computing giant has added another $1 trillion to its market value in just over two years after first reaching a $2 trillion valuation in June 2024. Amazon joins an exclusive club of companies that have achieved this historic market capitalization, with Nvidia, Alphabet, Microsoft and Apple being the only other companies to reach the $3 trillion threshold. Nvidia currently holds the position as the world's largest company by market capitalization at close to $5 trillion, highlighting the scale of Amazon's achievement in the competitive technology landscape. As per The Economic Times, this milestone places Amazon among only five companies ever to achieve such a valuation.
Amazon shares surged more than 15% in response to second-quarter earnings that showed Amazon Web Services revenue jumped by the most since 2021, with AWS generating $42.23 billion in revenue during the June quarter, significantly ahead of analysts' expectations of $40.54 billion. The 37% jump in second-quarter cloud revenue validated Amazon's massive AI investments and justified the company's strategic approach to capital deployment. Among the six "Magnificent Seven" companies, Amazon now leads in performance this year with the best-performing stock in the group. The rally has lifted Amazon's valuation from the 17-year low it hit in late March, though it remains about 44% cheaper than its average over the last decade at roughly 25 times forward earnings. As per The Economic Times, the company's stock now leads the Magnificent Seven group in performance, while the gauge of its big tech peers has struggled this year with only 2.1% gains compared to a 10% gain for the S&P 500 Index.
Amazon CEO Andy Jassy announced that the company raised its annual capital spending forecast by 10% to $220 billion for 2026, citing strong AI and chip demand that continues to outpace available computing capacity. According to Reuters, Jassy stated that even at the increased spending level, the company will still not have enough capacity to meet all of the demand in 2026, with similar constraints expected to persist into 2027. The CEO emphasized that memory prices linked to the AU buildout are continuing to rise, adding to the cost pressures. Jassy explained that Amazon's massive capital outlay strategy involves spending on data centers roughly two years before they open, creating a period of cash flow outflow before revenue generation begins. Once operational, these facilities can generate revenue for 30 years, while AI servers typically recoup their costs in less than three years.
Amazon's strong cloud performance came at a cost to cash flow, with the company burning $7.6 billion of cash on a trailing 12-month basis in the second quarter, compared to $18.2 billion in free cash flow a year earlier. As reported by Reuters, this represents a significant shift from the company's historically strong cash generation. The company's trailing 12-month capital expenditures rose to $173 billion, with the sharp increase in property and equipment purchases primarily reflecting investments in AI infrastructure. Other Big Tech competitors, including Microsoft, Alphabet, and Meta, also reported substantial drops in free cash flow as they ramp up AI-related spending. However, Jassy argued that the spending is necessary to address capacity constraints that have prevented the company from fully meeting AI-driven demand. The company's revenue of around $201 billion beat analysts estimates of near $196 billion, demonstrating continued strength across multiple business segments.
For the third quarter, Amazon forecast revenue of $197 billion to $202 billion, below analysts' consensus estimate of $203.9 billion, as reported by Investing.com. The company expects operating income of $22.5 billion to $26.5 billion, compared with $17.4 billion a year earlier. Despite the strong quarterly performance, investors have raised concerns about whether such massive AI investments will eventually translate into consistent profits. However, as per The Times of India, Thomas Monteiro, senior analyst at Investing.com, noted that "Amazon is earning the right to keep spending. Where others are asking investors to trust that the payoff will come, Amazon showed it this quarter." The market's selective approach to Big Tech AI spending is evident, with Meta and Google parent Alphabet both slumping 7% despite strong revenue growth after both companies raised their capital-spending forecasts and reported sharp declines in free cash flow. Bill Birmingham, managing director at REX Financial, explained that "The market is no longer questioning whether AI demand is real. The new dividing line is whether unprecedented spending is producing visible, near-term revenue and margin expansion." Wall Street remains upbeat on Amazon's long-term prospects, with the average analyst price target calling for the stock to rise about 14% over the year from current levels, according to data compiled by Bloomberg.
