Amazon has reported the fastest growth for its cloud division since 2021.

Amazon Web Services (AWS) reported $42.2 billion in revenue for the quarter, up on the $40.54bn expected by Wall Street, and a 36.7 percent year-over-year jump. The company as a whole reported $200.61bn in revenue, up 20 percent.

The cloud subsidiary reported $16.62bn in second-quarter operating income, and a 36.8 percent operating margin for the second quarter.

AWS' specific AI division has exceeded a $25 billion annual revenue run rate, as has the company's chips business.

However, the AI boom has also driven up costs for the company. In February, it said that its total annual capital expenditure (including ecommerce warehouses) was expected to be around $200bn. That has now been increased by $20bn.

"We now believe we will spend approximately $220 billion in cash capex in 2026," Amazon CEO Andrew Jassy said in an earnings call. "The higher cost of memory pushing this number up from a prior estimate of about $200 billion. But even at that amount, we will still not have enough capacity to meet all the demand we have in 2026. And I believe this dynamic will also be true in 2027 too."

He added, "I think it's no secret right now to any company in the world that there are inflated prices right now on some of the components like memory, hard drives, and SSDs."

Jassy, who used to be the CEO of AWS, also broke down the economics of data centers amid growing market uncertainty over the cost of AI buildouts.

"Data center capital is spent starting two years before we can put servers into them to start monetizing," he explained. "Once a data center opens with servers plugged in, we start generating significant revenue right away and then get to monetize these data centers for 30-plus years without having to spend that start-up capital again.

"Servers and networking equipment operate on a shorter cycle. We typically purchase these a few months before putting them into service, so we have strong visibility into customer demand before we trigger the spend. If the demand isn't there, we won't spend the capital. For servers and networking equipment, on average, it takes a little less than three years to break even on that investment. The servers currently have a useful life of at least five to six years. And most of our AI capacity these days is being contracted for at least five-year terms. That means that we're driving significant free cash flow on the servers and networking equipment in the two to three years after we break even."

Comparing the current moment to the early years of cloud compute, Jassy said that the short term will require the company to "spend a lot of capex and encounter free cash flow headwinds until these data centers come online, can be monetized and we get a few years into these servers being utilized. But as we get a few years out, the revenue growth outpaces the incremental capex growth, which will happen at some point. The resulting revenue, free cash flow, and return on invested capital, is very compelling."

Shares in the company jumped 14 percent following the earnings report.