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Amazon Earnings Review: What Does the Cloud Leader's Beat Mean for the AI Supply Chain?
$Amazon (AMZN.US)$ ’s Q1 2026 earnings report beat market expectations in overall revenue and AWS business growth. AI investments have started to yield returns; however, net income included substantial one-off gains, while free cash flow remained under pressure.
Microsoft, Amazon, and Google released their quarterly reports on the same day, a rare occurrence. All three companies showed strong growth in their cloud businesses, which provides important guidance for maintaining relatively high growth rates in future capital expenditures and expanding the overall AI industry chain market.
Core Financial Indicators
First-quarter net sales rose 17% year over year to $181.5 billion, up from $155.7 billion in the same period last year.
Operating income climbed to $23.9 billion, compared with $18.4 billion in the first quarter of 2025.
Net income reached $30.3 billion, or $2.78 per diluted share, up from $17.1 billion, or $1.59 per diluted share, in the year-ago quarter. Results for the first quarter of 2026 included pre-tax investment gains of $16.8 billion related to the company's stake in Anthropic, recorded within non-operating income.
Amazon's capital expenditures in Q1 reached $44.2 billion, a year-on-year increase of 76.7%, exceeding market expectations of $42.8 billion.
Business Segment Overview
AWS revenue reached $37.59 billion, a 28.4% year-over-year increase, marking the fastest growth in 15 quarters, primarily driven by AI workloads. Moomoo Insights noted in its preview that the market had previously expected Amazon AWS to grow by 25%, but the actual growth of 28% met the highest market expectations.
AWS's operating profit was $14.16 billion, a 22.6% year-over-year increase. Operating margin reached 37.7%, compared to 35% in the fourth quarter of the previous quarter. Amazon had previously mentioned that its self-developed Trainium, Graviton, and Inferentia chips were showing strong competitiveness, with annualized revenue reaching $20 billion.
North American e-commerce profit margins improved significantly, with revenue reaching $104.1 billion, a 12% year-over-year increase, and operating profit reaching $8.3 billion, a 42% year-over-year increase, resulting in a profit margin of 8.0%, higher than last year's 5.9%. This was attributed to improved fulfillment efficiency and optimized logistics costs.
International e-commerce revenue reached $39.8 billion, a 19% year-over-year increase, and operating profit reached $1.4 billion, a 40% year-over-year increase, with a profit margin of 3.5%, higher than last year's 2.9%. Expansion continued in emerging markets such as India, with reduced currency headwinds and the effectiveness of localized operations.
In the retail business, advertising continues to play the role of Amazon's profit stabilizer.
Advertising services revenue in the first quarter reached $17.24 billion, a year-over-year increase of 24%, maintaining the high growth momentum of the past few quarters. Compared to the retail business, advertising has a better gross profit structure and is more likely to contribute certain growth during macroeconomic fluctuations.Online retail revenue for the quarter was $64.25 billion, a year-over-year increase of about 12%.
Hidden Concerns and Risks
Net profit includes a large one-off gain. Of the $30.3 billion net profit, $16.8 billion came from changes in the fair value of the Anthropic investment. Core operating profit was approximately $13.5 billion, with an actual growth rate of about 20%.
Free cash flow plummeted: TTM free cash flow was only $1.2 billion, a 95.4% year-on-year decrease compared to $25.9 billion in the same period last year. AI investment has significantly depleted cash in the short term, and if high investment continues, the space for dividends and share buybacks will be limited.
AWS profit margins are under pressure. In addition to the decline in free cash flow, the high CapEx also puts pressure on long-term profit margins due to depreciation.
Earnings Guidance
Amazon forecasts its second-quarter 2026 net sales at $194 billion to $199 billion, up 16% to 19% year-over-year, with a median of $196.5 billion, significantly exceeding expectations, including a boost from Prime Day promotions. Operating profit is expected to be $20 billion to $24 billion, with a median of $22 billion, slightly below market expectations, reflecting continued investment in AI.
Summary
Amazon's earnings report generally exceeded expectations; however, the alignment between CapEx growth and AWS revenue growth, as well as the level of cloud business profit margins, remain indicators that investors need to continue to monitor.
Also check out moomoo's past insights on Amazon:
Disclaimer: Moomoo Technologies Inc. is providing this content for information and educational use only.Read more
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