Amazon disclosed that its cloud division, Amazon Web Services (AWS), now carries a backlog of $578 billion, a figure that has risen at triple‑digit rates. While AWS revenue grew 39.3% year‑over‑year to $46 billion, the backlog expanded by $82 billion in the most recent quarter, according to the company’s earnings call. The disparity prompted a more than 7% drop in Amazon’s share price in after‑hours trading.

Backlog growth outpaces sales

The backlog, which stood at $200 billion a year ago, has nearly tripled despite only a $3.8 billion addition to quarterly AWS sales. Sequentially, AWS added $4.6 billion in the second quarter, a smaller gain than the prior period. Jefferies analyst Brent Thill warned that cloud providers cannot convert backlog into revenue as quickly as investors expect, citing data‑center and supply‑chain constraints as the primary drivers.

Capacity constraints and AI demand

CEO Andy Jassy told investors that Amazon lacks sufficient capacity to meet 2026 demand and anticipates the same shortfall in 2027. He noted that an AI accelerator is installed roughly every 14 seconds, with customers absorbing capacity almost as fast. The rapid uptake of AI workloads is fueling the backlog, while the company’s capital spending is set to increase substantially beyond the $220 billion budgeted for 2026, after a prior raise from $200 billion.

Financial implications and outlook

Despite the backlog pressure, AWS operating income rose to $17.8 billion from $11.4 billion a year earlier, indicating higher margins on the services that have been delivered. However, trailing free cash flow swung to an outflow of $42.4 billion from an inflow of $14.8 billion a year prior, highlighting cash‑flow strain. Amazon projects AWS growth above 40% in 2027 and 2028, marking six consecutive quarters of acceleration from 20% growth in Q3 2025. Investors may begin to evaluate hyperscalers based on data‑center capacity actually switched on rather than contracts signed.

What to watch next

Analysts will monitor Amazon’s capital‑expenditure rollout in 2027, especially the pace of new data‑center construction and memory‑chip procurement. Subsequent earnings from Microsoft and Alphabet will provide comparative insight into how the broader cloud sector is handling AI‑driven demand. Any revision to AWS’s backlog or revenue trajectory in upcoming reports could further influence Amazon’s stock performance.