Rereading the second quarter of 2026 through cloud operators' operating cash flow, capital expenditure, free cash flow and backlog
The $20B increase in Amazon's 2026 capex guidance is memory unit pricing. Yet the AWS operating margin hit a record 39.4% in the same quarter. When costs rise and the margin rises with them, selling prices rose faster, and compute rental pricing turning off its trough is the substance behind that price. There is a case for reading −$7.6B of free cash flow as a trough recorded before the price increase lands.
Second-quarter results released after the US close on 2026-07-30. AWS grew 36.7%, its fastest in 18 quarters, at a record 39.4% margin; backlog rose from $364B to $496B; and 2026 capex guidance was raised from $200B to $220B. The stock rose roughly 9% after hours.
Gaining certainty - operators renting out compute, with rental pricing up roughly 40% off the trough and on-demand capacity sold out; memory suppliers, since the capex increase is a direct unit-price upgrade to their revenue; the power value chain as the volume bottleneck behind the price bottleneck. Taking on more burden - end tenants renting compute, facing renewal at 1.5 to 2 times prior pricing; and net-income-based valuation metrics, invalidated by $53.4B of non-operating pre-tax income.
Whether the AWS margin holds in the 39% range at Amazon's Q3 results on October 30, the single confirmation indicator for the pass-through, then NVIDIA results in late August, then a confirmed filing on the Anthropic AWS commitment in September or October, then the memory price assumption embedded in first 2027 capex guidance in the fourth quarter, and bond issuance terms and credit spreads through the year.
AWS revenue of $42.23B grew 36.7% year over year. Jassy called it the fastest growth in 18 quarters. The quarterly trajectory runs 18% in the second quarter of 2025, then 20%, 24%, 28%, now 37%. Five consecutive quarters of acceleration.
Chart 2. Cloud revenue growth YoY at the three largest providers, latest reported quarter — Azure FY26 Q4 +43%, Google Cloud Q2 2026 +82%, AWS Q2 2026 +36.7%
On growth alone AWS is not the fastest cloud. Google Cloud grew 82% in the same quarter and Azure grew 43% in constant . Oracle Cloud Infrastructure grew 93% in its fiscal quarter ended in May. That comparison ignores the denominator. AWS runs at a $169B annualized rate, the largest of the group. The absolute incremental dollars produced by 36.7% growth still lead.
| Quarter | AWS | Azure (constant currency) | Google Cloud |
|---|---|---|---|
| Q2 2025 | +18% | +39% | +32% |
| Q3 2025 | +20% | +39% | +34% |
| Q4 2025 | +24% | +38% | +48% |
| Q1 2026 | +28% | +39% | +63% |
| Q2 2026 | +37% | +43% | +82% |
Microsoft is on a June fiscal year, so its fiscal quarters are aligned to calendar quarters here. Azure has no standalone reported revenue, only a growth rate, shown in constant currency.
The three trajectories point the same way. AWS had been stalled around 20% through mid-2025 before it accelerated, and the others climbed over the same period. One table is enough to establish that demand has turned.
Profitability is the sharper story. AWS operating income of $16.62B rose 63% from $10.16B. A 39.4% margin was delivered straight through the depreciation load of a capex surge. Cloud margins usually compress in this phase. AWS went the other way.
What matters here is not the level of the margin but its direction. If depreciation is climbing and component prices are rising while the margin sets a record, then price and mix rose faster still. The substance behind that price is compute pricing.
AWS has both scale and acceleration, and the fact that its margin rose while depreciation was climbing is the most important piece of information in this quarter's P&L.
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