Amazon reported better-than-expected second-quarter earnings on Thursday, and investors loved what they saw. Net sales rose by 20%, with cloud revenue standing out as a particular bright spot. This positive result was enough to send Amazon’s stock up nearly 10% in after-hours trading.

Crucially, despite the conventional wisdom that investors want companies to rein in expenses, Amazon isn’t slowing down on data center spending. The company spent $173 billion for the fiscal year ended June 30 on property and equipment, a category that covers GPUs, natural gas turbines, and plots of land, up from $107.65 billion from the previous year.

Additionally, Amazon raised its 2026 capital expenditure forecast to $220 billion, even as it has begun dipping into its cash reserves to cover costs. This move marks its first period of negative free cash flow this year.

The revenue engine provided by AWS helps justify the spending. AWS revenue rose by 37% year over year, clocking in at $42 billion for the quarter. However, it’s not enough to balance out the capital expenditure spending in raw arithmetic, but it shows that demand is growing alongside supply.

Amazon’s AI play isn’t limited to building large data centers; the company is also making serious long-term bets on chips like the Trainium TPU and the Arm-based Graviton processor. These projects don’t show up in capital expenditure numbers, but they can meaningfully improve margins for the company's cloud business.