AWS Acceleration & Operating Income Upside as AI Investments Show Returns; Reiterate Overweight $365 PT

First-page research excerpt

J P M O R G A N

North America Equity Research

31 July 2026

Amazon.com

AWS Acceleration & Operating Income Upside as AI

Investments Show Returns; Reiterate Overweight $365

PT

Overweight

AMZN, AMZN US

Price (30 Jul 26):$235.50

▲Price Target (Dec-27):$365.00

Prior (Dec-26):$330.00

Amazon FXN revenue growth accelerated to +20% in 2Q, the fastest in 20 qtrs,

w/acceleration across both AWS & Stores. AWS growth of +37% was the fastest

in 18 quarters, while backlog increased nearly 2.5x Y/Y & +36% Q/Q to $496B

on stronger demand across both core workloads and AI adoption. AWS’ AI

and chips businesses both exceeded $25B+ ARR & grew triple-digits, while

Graviton also saw revenue commitments increase 3x Q/Q. We’re also encouraged

by the strength in the core AWS business, which has a high correlation with AI

revenue, and we expect this relationship to further strengthen over time as more AI

workloads move into full-scale production and drive additional demand for core

services. Bedrock adoption remains strong with more customers added in the last

6 months than in the first 2 years post-launch and customers spending more in 2Q

than in all prior quarters combined. Outside of Bedrock, AMZN confirmed that it

is pursuing its own frontier model with the near-term focus on internal usage, but

eventually offering it externally. AMZN OI of $27.5B (43% Y/Y) came in 15%

above our $23.9B driven by strong AWS margin expansion, though also included

$1.2B in 1x benefits, w/$600M in tariff refunds benefiting NA OI and$600M

related to derivative accounting for energy contracts which benefited AWS OI. 2Q

AWS margins expanded by ~650bps to 39.4% (~37.9% ex-1x benefits) driven by

revenue upside as well as efficiency gains & capacity optimization. Importantly,

management emphasized that the ROIC on its AI investments is compelling and

it has a clear line-of-sight to strong financial returns. In terms of the ROIC

framework, it takes less than three years to breakeven on server and networking

equipment investments, which have a useful life of at least 5-6 years, while data

centers have 30+ year useful lives, enabling five to six generations of servers over

time.…