👉 Cloud Winners Paid, CapEx Spenders Punished

Let’s dive right in!

Couldn’t be a happier shareholder! Amazon reported stellar earnings characterized by massive expansion in their operating profits. This was mainly driven by margin expansion within their AWS and North America retail segments.

AWS revenue grew 19% year-over-year to $29.5 billion, generating $10.8 billion in operating income at a 36.6% operating margin. The North America retail segment posted a 9.5% revenue increase to $96.3 billion, with operating income improving to $5.8 billion. The International retail segment maintained its profitability, reporting an operating income of $1.7 billion on $36.7 billion in revenue. Their advertising services division continued its strong trajectory, with revenue growing 22% to $14.8 billion, aided by sponsored placements and the scaling of Prime Video advertisements.

Capital expenditures for the quarter totaled $17.5 billion. Management indicated that this elevated spending is directed toward expanding data center infrastructure and acquiring the necessary computing hardware to support generative artificial intelligence workloads.

CEO Andy Jassy focused on the acceleration of AWS and the structural improvements within the retail fulfillment network. The executive team emphasized that generative AI has evolved into a multi-billion-dollar run-rate business within AWS, driven by enterprise adoption of Amazon Bedrock and proprietary silicon. Management also highlighted that the regionalization of the U.S. fulfillment network continues to yield lower transportation costs and faster delivery speeds, directly contributing to the margin expansion in the North America segment.

Looking ahead, management guided to $157.5 billion in revenue next quarter, growth of about 10%. Management also expects $16.5 billion in operating income next quarter.

Very long AMZN.

Microsoft also reported a stellar quarter, exceeding Wall Street’s expectations due to continued adoption of their enterprise AI product.

The Intelligent Cloud division served as the primary growth engine, generating $39.3 billion in revenue (+32%). Within this segment, Azure and other cloud services grew 43%, driven by enterprise AI deployments. The Productivity and Business Processes segment posted $37.8 billion in revenue, a 14% increase, boosted by a 14% reported growth in Microsoft 365 Commercial and a 13% increase in Dynamics 365. Conversely, the More Personal Computing segment experienced a slight contraction, with revenue falling 4% to $12.9 billion, weighed down by a 7% decline in Windows OEM and Devices.

Microsoft's quarter was bolstered by a massive expansion in its commercial remaining performance obligation, which grew 84% to $678 billion, providing deep visibility into future contracted revenue. The company also recorded a $3.2 billion gain from its investment in Anthropic, which aided GAAP profitability. Furthermore, management opted to hold its AI capital expenditure forecast steady, signaling operational discipline amidst the broader industry's aggressive infrastructure buildout.

CEO Satya Nadella focused on the tangible monetization of the company's artificial intelligence investments. The executive team highlighted two major milestones: Azure surpassed $100 billion in annual revenue for the first time, and Microsoft 365 Copilot reached over 30 million paid seats. Management emphasized that AI has transitioned from an experimental phase into a foundational technology layer, with organizations actively paying to deploy these tools across their data and workflows.

Looking ahead, management guided to $90 billion in revenue next quarter, representing +17% growth YoY.

Long MSFT.

Apple delivered a strong quarter catalyzed by double-digit growth in their iPhone and Mac product lines.

iPhone revenue reached $54.25 billion, a 22% increase year-over-year. Mac revenue experienced 29% growth to $10.6 billion, while iPad revenue declined by 6% to $6.2 billion. The Greater China region rebounded sharply, posting $18.8 billion in revenue, a 22% increase. Conversely, the Services division, while growing 12% year-over-year to $30.7 billion, fell short of the $31.22 billion consensus estimate. The company also announced a major leadership transition, confirming that John Ternus, the current Senior Vice President of Hardware Engineering, will succeed Tim Cook as CEO on September 1, 2026.

Apple generated a June-quarter record of $34.4 billion in operating cash flow. The company maintained its capital return program, declaring a quarterly cash dividend of $0.27 per share. Management noted that the $0.11 per share benefit from the tariff refund provided a one-time lift to the bottom line, meaning core operational earnings were effectively in line with Wall Street projections rather than a substantial outperformance.

Management focused on the hardware resurgence and the impending leadership change. The executive team emphasized that the installed base of active devices reached a new all-time high across all product categories. However, the tone shifted when addressing the global supply chain. Management warned that a severe shortage of memory chips and rising artificial intelligence computing costs are creating a highly constrained supply environment, which is expected to limit output and pressure costs into the upcoming quarter.

Looking ahead, Apple provided cautious guidance for the third quarter. The company expects revenue growth of +10%, absorbing a 2.5% foreign exchange headwind. Management also expects next quarter’s gross margin to decline to about 48% — reflecting the elevated memory and component costs across the manufacturing supply chain.

Long AAPL.

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