Did Amazon really beat earnings by 216%? No. Net income of $62.6 billion included, in the company’s own words, “non-operating pre-tax other income of $53.4 billion, primarily from our investments in Anthropic.” At the quarter’s 22.6% tax rate that gain contributed roughly $41.3 billion after tax. Strip it out and earnings were about $1.95 per share against $1.82 expected, a normal beat of roughly 7%. The gain is non-cash and reversible, and will flatter comparisons for four quarters before doing the opposite.

So why did the stock rise 15.3% the next session? The segment detail was genuinely excellent. AWS revenue grew 36.7% to $42.2 billion, its fastest in eighteen quarters and well ahead of the 31% expected, at a $169 billion annualised run rate. AWS operating income rose to $16.6 billion from $10.2 billion, lifting the segment margin to 39.3% from roughly 33.1%. A cloud business accelerating while expanding its margin by six points is very difficult to fake.

What does that tell us about the capex debate? More than any other disclosure this season. Every large technology company is being asked whether enormous AI spending earns a return, and Amazon’s answer is that the segment absorbing the spending is growing faster and getting more profitable at once. The call added the number that matters most: AWS carries a $496 billion backlog of contracted, not-yet-recognised revenue, close to three years of its current run rate already committed. Management said AI and core cloud workloads are reinforcing each other, and that AWS could eventually become a $1 trillion annual-revenue business. Group operating income, which excludes the Anthropic gain entirely, grew 43%.

Wasn’t the revenue guidance a miss? Mechanically. Guidance of $197-202 billion sits below the roughly $204 billion consensus, but excluding Prime Day timing in both years, growth would be nearly 400 basis points higher. A calendar artefact, not a demand signal.

Then why is the rating still Watchlist? Cash and price. Trailing free cash flow is an outflow of $7.6 billion against an inflow of $18.2 billion a year ago, and management said on the call that it expects near-term free-cash-flow pressure as data centres are built ahead of monetisation. It also raised 2026 capital expenditure to roughly $220 billion from $200 billion, attributing the increase chiefly to higher memory costs, meaning a good part of that rise buys no incremental compute. Meanwhile the shares rose 17.8% in three sessions to roughly 35.5 times annualised clean earnings, leaving about 8.5% to a fair value of $301. An excellent business at a full price, one confirming quarter or one ordinary pullback from an easy decision. The complete Amazon (AMZN) report is on our Reports page.