Amazon Stock Breaks Trendline as AWS Growth and $220B AI Spending Drive AMZN

AWS delivered its strongest AWS growth at 37% in more than four years, reaching $42.2B in Q2. Backlog grew to around $496B, and management indicated that demand still outpaces capacity. Amazon extends its AI portfolio to include AI training, inference, agents, databases, and security. Amazon’s initiatives aim at improving the economics of AI workloads, and the company is already using Graviton, Trainium, and Inferentia.

Q2 operating income reached $27.5B, which is a good proxy for cleaner profits compared to the headline EPS. The rest of Amazon's reported earnings were impacted by $53.4B of non-operating pre-tax income, primarily tied to its Anthropic investment which distorted Amazon’s reported earnings. That profit should not be considered recurring operating profits.

For 2026, Amazon increased its capital expenditure budget to around $220B, and the new budget focuses on data centers, servers, networking, AI chips and power infrastructure. Management argues that the spending is demand-related, but it is clear that the capacity constraint in the cloud is preventing growth.

There's a cash flow trade-off here. Free cash flow was negative at approximately $7.6 billion in the last 12 months. Amazon Web Services (AWS) is growing in the mid-30% range. If Amazon continues to grow and investors see that growth, they may be able to justify the spending. On the other hand, if growth slows, the market could lose faith and think Amazon is overbuilding.

Amazon's Q2 advertising revenue increased by 26% year on year to $19.8 billion, giving Amazon another high-margin engine alongside AWS and contributing to high margin growth. Data on retail customer traffic and purchase intent allows Amazon to profit from the myriad of ways it can engage with customers -- through advertising, Prime memberships, e-commerce, and logistics.

AI agents continued to evolve. Persistent runtimes for production agents had Amazon Bedrock AgentCore upgraded. DynamoDB added real-time vector search. Additionally, Amazon built integration bridges to incorporate the security tools of AWS Continuum in workflows involving Anthropic Claude Code, OpenAI Codex, and Kiro as AWS further develops its presence in the software and security layers of AI.

Zoox, an Amazon-owned company, began charging for robotaxi rides in Las Vegas during August, after the U.S. approved the company to deploy vehicles lacking standard control control systems. Although Zoox is not currently relevant for earnings, the company creates the option value for future services.

Moonshot AI has been in talks with Amazon, Microsoft and Google to host its Kimi K3 model for revenue-sharing engagements, however, no deal has been confirmed, and this remains a potential catalyst.

On August 31, Brent crude moved above $90, with the escalating tensions in the Gulf and a rise in Treasury yields. Markets were pricing in a September Federal Reserve rate hike after hawkish comments from Fed Chair Kevin Warsh. Higher yields drive growth stocks down, and capital intensive AI will become even less attractive.

This suggests that strong fundamentals of Amazon may not result in a straight-line rally. How investors will continue to factor in the AI-capex story may depend on the latest US labor data and Treasury yields.

Considering the 2-hour chart with the provided Amazon data (AMZN) at $266.39, live market data at $266.43, and the technical analysis still valid, Amazon has cleared a descending trendline and the 38.2% Fibonacci retracement level at $263.95.

Amazon Stock Price Chart - Source: Tradingview

If Amazon stays above $263.92 - $264.00, the breakout will be valid, and the focus will shift to the next resistance level at $272.87 - $272.91. A move above this level will focus attention on the level at $279.84, followed by the previous high at $287.35. RSI still remains at 62, showing some positive momentum, and has not exceeded the overbought level at 70.

A failure of the breakout will focus attention on the next support level at $260.19, followed by $256.74. A break of this level will weaken the bullish structure and focus attention at the support level of $249.59.

Key Levels

·       Current price: $266.43

·       Immediate pivot: $263.92 - $264.00

·       First support: $260.19

·       Major support: $256.74

·       Breakout target: $272.91

·       Higher targets: $279.84 and $287.35

·       RSI: Around 62, bullish but not overbought

The rise in AMZN has been attributed to strong demand for Amazon Web Services (AWS) and the growth of Amazon’s AI infrastructure. The company sustained a 37% growth in cloud services in the second quarter of this year, and the company has strong capital investment to continue to grow.

The main risk to AMZN is the company’s $220 Billion capital spending plan. If strong demand for AWS continues, the capital spending program could be justified. However, if the demand for cloud services weakens and yields on U.S. Treasuries remain high, investors will become increasingly less tolerant of negative free cash flow.

Amazon begins the month of September with a compelling growth story amongst other tech heavyweights. First, AWS accelerated, and advertising is still an effective second engine. Additionally, Amazon is expanding its AI strategy across several fronts including agents, databases, security, and custom silicon. As with most of the tech giants, this creation of new growth streams comes at a hefty cost. In addition to the heavy capital outlays, AMZN is still capital intensive, and thus, remains stocks at risk from cloud execution and changes in the rates charged by lenders. Technically, Amazon remains in a constructive position above $263.92. $272.91 will be the next level of resistance, and $260.19-$256.74 will be the level of support and must hold.