What are some in-depth discussions about Amazon's financial report and why is the stock price rising despite the increase in capital expenditures? 1. AWS Elephant Dancing: 1) For a business with an annualized revenue of $169 billion, the growth rate continues to rise from 28% to 36.7%, which is much higher than the value of a small-scale business rising from 50% to 60% 2) AWS profit margin of 39.4%, which is more important than 37% revenue growth 3) The AWS backlog has reached $496 billion, a year-on-year increase of over 100%. Compared to AWS's current annualized revenue run rate of $169 billion, the backlog is approximately 2.9 times the current annualized revenue. The management stated that the majority of the newly added capacity for 2027 has already been reserved, and a considerable amount of capacity has also been reserved for 2028 4) AWS growth is not just about AI labs, but about the simultaneous acceleration of AI and traditional cloud. The management has clearly stated that AWS revenue growth this quarter comes from both AI services and traditional core cloud services. AI is not a completely independent computing power island: post model training, reinforcement learning, and Agent tool calls will increase CPU demand, and production environments will further drive storage, database, network, security, and observability consumption. 5) AWS contributed approximately 21% of Amazon's revenue this quarter, but also contributed approximately 61% of its operating profit. More importantly, Amazon's total operating profit increased by approximately $8.29 billion year-on-year; AWS's operating profit increased by approximately $6.46 billion year-on-year; AWS contributed approximately 78% of the company's incremental operating profit. This indicates that Amazon is further transforming from a retail company with cloud services to a platform based company with AWS and advertising as profit centers, and retail supply chain as traffic and data infrastructure. 2. Return to capital in less than three years The management stated that the average investment recovery for servers and network equipment is less than three years, while the service life of servers is at least five to six years, and most AI capacity contracts are at least five years. If this statement can be cashed out based on real cash flow, then the approximate lifecycle of a server batch is: Year 0: Procurement of servers and network equipment Year 1-3: Accumulated recovery of initial investment Years 4-5/6: Entering a phase of significant positive free cash flow Subsequently, the server will be updated, but the original data center, power, and land will continue to be used. This model can theoretically generate ROIC higher than the cost of capital. 3. Main business 1) The retail business is growing well, with healthy performance in revenue, order volume, and fulfillment efficiency. The cost structure is still good: the company's revenue has increased by about 20%, while performance expenses have increased by about 14%, sales and marketing expenses have only increased by about 2.5%, and management expenses have decreased by about 6% year-on-year; Only technology and infrastructure expenditures have increased by about 22%, reflecting an acceleration in AI investment. 2) Advertising business: The second profit center obscured by AWS, with advertising revenue reaching $19.8 billion, a year-on-year increase of 26%, and the growth rate accelerating again from around 22% in previous quarters. Its quarterly revenue is equivalent to approximately 47% of AWS revenue 4. Why does Amazon increase Capex and its stock price actually rise? Amazon will increase its cash Capex from $200 billion to $220 billion in 2026, but its stock price will rise more than 9% after hours. This is in stark contrast to the pressure on the stock price after Alphabet disclosed a high Capex. The market is not simply punishing capital expenditures, but rather assessing whether capital expenditures have generated verifiable income and returns. Amazon has provided four layers of evidence this time: AWS growth rate accelerated from 28% to 36.7%; Normalize AWS profit margin to approximately 38%; The backlog reached 496 billion US dollars; Most of the newly added capacity in 2027 and some of the capacity in 2028 have already been reserved. More importantly, Amazon explained: The data center will be invested about two years in advance; The server is only purchased a few months in advance; The average payback period for servers is less than three years; Service life of five to six years; Most AI capacity contracts are at least five years old. Therefore, the market is accepting an increase in Capex with simultaneous strengthening of demand and return evidence, rather than simply accepting $220 billion in expenses. In summary AWS has entered the harvest period of the previous capital round, but Amazon has also launched a larger next capital round. The current income and profit prove that the first round of investment returns are good; The upward potential of future valuation depends on whether the second round of investment can replicate the same high utilization rate, high profit margin, and return on investment within three years in 2027-2028. This article is sponsored by @ bitget_zh, titled 'Bitget Buying US Stocks: Instant Entry, Smooth Trading'