Amazon (AMZN) Stock Price Forecast: AWS Hit Its Fastest Growth in 15 Quarters — Does $200B Capex Matter?

TradingKey - Amazon (NASDAQ: AMZN) shares are hovering around $245, having pulled back from their May peak of $278.56, as the market balances massive revenue generated by artificial intelligence against heavy investment costs. In Q1, its cloud arm Amazon Web Services, or AWS, grew revenue 28% year-over-year, the fastest it's posted in 15 quarters.

Meanwhile, the amount of money customers have pre-committed to AI services is $364 billion. But Amazon spent heavily on AI data centers and chips. In doing so, trailing 12-month free cash flow shrank to $1.2 billion. Investors will be watching Q2 results released July 30 to see if AWS growth persists. They'll also be waiting to see whether free cash flow starts to return. If Amazon closes the week above $259.90, that would confirm a breakout toward the tech giant's last peak, a record high around $279.

AWS Growth and AI Backlog: Why Amazon's AI Business Matters

AWS is still taking the lead in Amazon's AI bets. The cloud giant posted $37.6 billion of revenue in the quarter, up 28% year over year, representing its fastest rate in nearly four years. CEO Andy Jassy said AI demand was accelerating and noted that Amazon Bedrock processed more tokens in Q1 than the prior quarters combined.

Amazon's $364 billion of backlog, which is revenue that the cloud giant has contracted but not yet reported, could help boost growth in future years. Among the large AI infrastructure deals Amazon signed in the quarter were one with OpenAI to build approximately 2 gigawatts of Amazon Trainium capacity starting in 2027 and one with startup Anthropic, which wants to use up to 5 gigawatts of current and next-generation Trainium chips. Meta also ramped up use of AWS chips designed by Amazon known as Graviton.

Amazon Trainium, Graviton and other types of chips developed in-house, like Nitro, have already grown to a $20 billion annual run rate, making for a fast-growing business along with AWS. Many analysts believe this AI spending could support stronger cloud growth for some time, and that AWS will be the main value driver going forward.

Capex vs Free Cash Flow: The Key Debate Before Earnings

AWS growth is picking up. But some investors have concerns regarding Amazon's large spending plans on AI. It plans to spend about $200 billion to build data centers, networking equipment and custom AI chips to support its AI investments in 2026. That's why Amazon's trailing 12-month free cash flow decreased to $1.2 billion from $25.9 billion in the same period last year.

However, management said Amazon's situation is the same it was for early AWS investments, in which high capital spending led to one of its most-profitable businesses. The case for Amazon being worth its current price includes its growing AWS backlog and increasing demand for Trainium chips along with other AI spending from customers. The next opportunity to see Amazon results will come in Q2 earnings July 30. Investors will keep an eye on AWS growth, cash flow trends, margins, and spending outlook. Any news that cash flow is on track with higher AWS growth would be seen as a bullish sign.

AMZN Technical Analysis: Key Levels to Watch

Amazon is still within an ascending channel, holding the 0.5 Fibonacci level at about $239, above the 200-day Exponential Moving Average at $230. The RSI around 51 suggests neutral momentum and that the current decline is more of a pause than a trend change.

Amazon (AMZN) Stock Price Chart - Source: Tradingview

A close above $259.90 would break above the key Fibonacci resistance level, which could set up a test of the prior high near $278.70. A close below $229.50 would invalidate the current bullish bias.

• Buy Trigger: A close above $259.90
• Target: $278.70
• Stop Loss: A close below $229.50

The near-term technical setup is very much dependent on the earnings report on July 30. We expect AWS growth, investment plans for AI and a free cash flow guide to be the primary drivers.

Why Is Amazon's Free Cash Flow So Low?

Amazon's trailing 12-month free cash flow dropped to just $1.2 billion as the company significantly ramped up its spending on AI. The increase includes building data centers, deploying networking gear and purchasing custom AI chips. Management says Amazon is focused on building infrastructure that will grow its core AWS business as well as expanding its AI business.

What Are the OpenAI and Anthropic Trainium Deals?

OpenAI and Anthropic have struck deals to use Amazon's Trainium AI chips via Amazon Web Services. The deals represent one of the largest disclosed AI infrastructure investments for Amazon's cloud business to date. Those types of large AI deals are a great development for the long-term outlook of AWS and also prove Amazon's strategy for custom-built AI chips is working.

What Should Investors Watch During Amazon's Q2 Earnings?

Investors should focus on AWS's revenue growth rate, where cash flows are in the quarter, the company's AI spending rate and management's commentary around future capital expenditures. Amazon's shares could move higher again on the back of strong cloud growth and signs that cash flows are improving.

Bottom Line

Amazon is entering its earnings season with strong momentum around AI with accelerating growth from its core AWS business, along with its backlog reaching $364 billion on a record quarter. But with elevated levels of capital expenditures needed to build infrastructure for AI, free cash flow continues to suffer. July 30 earnings will be a make or break moment to see if Amazon can grow rapidly from AI investments while also making progress on generating more free cash flow. Amazon is still in a bullish technical setup so a close above $259.90 would validate a target at $278.70 with $229.50 as its key support.