Amazon stock has climbed 25% to a fresh record high since its second-quarter earnings report on July 30, after CEO Andy Jassy said Amazon Web Services could eventually generate $1 trillion in annual revenue. The shift comes as AWS revenue accelerated for a fourth straight quarter and its customer order backlog swelled to $496 billion.
Jassy raises the ceiling on AWS
Amazon stock had gone nowhere for the first seven months of 2026, but shares have since jumped 25% to a record high following the July 30 earnings call. On that call, Jassy revised his own forecast for the cloud unit upward. He had previously said AWS could eventually generate a few hundred billion dollars in annual revenue. He now believes it could bring in $1 trillion a year.
The AWS unit already produced $42.2 billion in revenue during the second quarter, a 37% increase from the same period last year. That growth rate has accelerated for four consecutive quarters. Backing the higher forecast is an AWS order backlog that reached $496 billion, up by triple-percentage digits year over year, as customers wait for more data center capacity.
AI chips and tools drive the acceleration
Amazon's own AI chips are behind much of the growth. Its Trainium2 chip delivers up to 30% better price-performance than competing options. The newer Trainium3, which recently started shipping, improves price-performance by another 30% to 40%. That chip business now generates $25 billion in annualized revenue.
AWS Bedrock also gives developers access to more than 100 ready-made AI models, including some from Anthropic. Meanwhile, Amazon's AI coding assistant, Kiro, is 50% more cost-effective than rival tools. Its usage tripled sequentially in the second quarter.
Spending now, earnings later
Amazon plans to spend $220 billion on data centers in 2026 alone to convert its backlog into revenue. Because data centers depreciate over several years rather than being expensed immediately, this year's spending will affect earnings in 2027, 2028, 2029 and beyond.
Amazon's trailing earnings of $12.44 per share put its stock at a price-to-earnings ratio of about 22, below the Nasdaq-100's 32.7. However, just over $69 billion of Amazon's $120.7 billion in first-half 2026 pretax profit came from paper gains on its investment in Anthropic, unrelated to its core operations. Wall Street analysts expect earnings to decline in 2027 because they don't think Anthropic's valuation will keep rising at the same pace. That leaves Amazon trading at a forward P/E of 27.7.
Source: The Motley Fool
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