Amazon's second-quarter earnings report, released on Thursday, exceeded expectations, and Wall Street responded enthusiastically. Net sales climbed by 20%, with cloud revenue emerging as a particularly strong performer. This combination of favorable results propelled Amazon's stock nearly 10% higher in after-hours trading. Notably, the company shows no signs of slowing its data center investments, despite the prevailing belief that investors want firms to curb such spending.

One specific metric highlights Amazon's aggressive infrastructure push. For the fiscal year ending June 30, the company spent $173 billion on property and equipment—a category encompassing GPUs, natural gas turbines, and land—up from $107.65 billion the previous year. Amazon also raised its 2026 capital expenditure forecast from $200 billion to $220 billion, even as it has started tapping into its cash reserves to cover costs. The company ended the quarter with $7.6 billion less cash than it had 12 months ago, marking its first period of negative free cash flow this year.

Under typical circumstances, rising expenses would be a hard sell for investors. However, Amazon has a revenue engine that helps justify the spending. AWS revenue surged 37% year over year, reaching $42 billion for the quarter. While that figure doesn't fully offset the capital expenditure in raw numbers, it demonstrates that demand is growing alongside supply. Given the years-long lag between breaking ground on a data center and selling its capacity, this trend is reassuring for investors.

Crucially, Amazon's AI strategy extends beyond building large data centers. The company is also making significant long-term bets on chips like the Trainium TPU and the Arm-based Graviton processor. These projects don't appear in capital expenditure figures, but they can meaningfully improve margins for the cloud business. "We see the AI business following very much the same margin trajectory we saw in the core business before," CEO Andy Jassy said during the Q2 earnings call. "AWS and Amazon Bedrock can have a wildly successful business without its own frontier model, and the reason is that there’s not going to be a single model to rule them all."

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This dynamic isn't unique to Amazon. Similar patterns emerged at Microsoft and Google, whose shares also rose after reporting strong cloud revenue. Conversely, companies like Meta—which have significant capital expenditure but no clear revenue source—continue to face intense skepticism from investors. Meta's stock fell 8% after its earnings report this week, as investors focused on its cash flow crunch and ongoing spending.

Of course, investors favor revenue and dislike expenses—that's how markets function. But it's important not to overlook the broader lesson about the AI economy. Right now, investors are treating cloud hosts as the most reliable part of the AI stack, while remaining skeptical about the underlying economics for AI labs and startups. However, Amazon's hosting revenue is someone else's AI bill. In Anthropic's case, it's literally the same money. If that spending isn't sustainable for the big labs and their clients, the revenue won't be stable for Amazon and other cloud hosts. There's real competition and differentiation at every level of the stack, but if demand for AI doesn't hold up, it's going to be a bad time for everyone. Ultimately, it all comes back to David Cahn's $3 trillion question: either there's enough demand to justify this buildout, or there isn't. Cloud-hosting services like AWS may be a few steps removed from that demand problem, but that doesn't mean they're insulated from it.