Cloud Cover Holds: AWS Drives Profits as Amazon’s 2031 Bond Yields 4.84%

• AWS remains the key earnings engine: Revenue growth is accelerating, and the segment contributes the largest share of Amazon’s operating-income growth.
• Credit metrics remain comfortable: Total debt-to-EBITDA is broadly stable at 1.43x, although weaker interest coverage reflects rising financing costs.
• Heavy AI investment is pressuring cash flow: Elevated capital expenditure has pushed trailing-12-month free cash flow into negative territory.
• Amazon’s 2031 bond offers a 4.84% yield-to-worst: Providing a modest pickup over Treasuries and selected higher-rated technology peers, while appearing broadly valued.

Net Sales Growth Accelerates Across All Segments

As in the previous quarter (1QFY2026), Amazon saw broad-based growth across its three segments - North America, International, and Amazon Web Services (AWS) - in its second quarter (2QFY2026), which ended on 30 June 2026. As shown in Figure 1, consolidated net sales rose 19.6% YoY to US$200.6 billion. North America, Amazon's largest segment by revenue, grew 16.1% YoY to US$116.2 billion (57.9% of total net sales), while International grew 14.8% YoY to US$42.2 billion (21.0% of total net sales). The remaining 21.1% of net sales was generated by AWS, historically the smallest but fastest-growing segment, which jumped 36.8% YoY to US$42.2 billion – its fastest growth in 18 quarters. The segment’s momentum was underscored by its AI and chips businesses, which each exceeded a US$25 billion annualised revenue run rate during the quarter. AWS has effectively closed the gap with International, with the two segments now contributing an equal share of consolidated revenue, up from AWS's smaller 18.4% share in the same quarter last year.

Taken together, Amazon’s consolidated net sales were up 18.2% YoY to US$382.1 billion for 1HFY2026. North America recorded a 14.2% YoY increase to US$220.3 billion (57.7% of total net sales) while International grew 16.7% YoY to US$82.0 billion (21.5% of total net sales). This growth was supported by a 40% increase in the number of items delivered to Prime members on the same day or overnight. Meanwhile, AWS surged 32.7% YoY to US$79.8 billion (20.9% of total net sales).

Moving into 3Q2026, management has guided for net sales to grow between 9% and 12% YoY, to between US$197.0 billion to US$202.0 billion. The guided range looks softer than 2Q2026’s 19.6% YoY growth as Amazon shifted Prime Day into June this year, pulling sales that would normally land in 3Q forward into 2Q. Excluding the impact of Prime Day timing in both 2025 and 2026, 3QFY2026 growth would be roughly 400 basis points higher. 

Figure 1: Amazon’s Net Sales Across Business Segments

AWS Drives Operating Income Growth

Amazon's operating income also recorded strong growth in 1H FY2026, with North America up 30.2% YoY to US$17.4 billion, and International up 25.1% YoY to US$3.1 billion. AWS, whose business structure allows it to run the highest margins of the three segments, saw a 41.8% YoY surge to US$30.8 billion in operating income, making it the largest contributor to the group's profit growth. As a result, consolidated operating income rose 36.6% YoY to US$51.3 billion, with operating margin expanding from 11.6% in 1H2025 to 13.4% in 1H2026.

Demand signals point to this momentum continuing: AWS's Trainium chips are gaining traction, with Anthropic and OpenAI making multi-year, multi-gigawatt commitments, alongside a growing number of start-ups adopting Trainium. Amazon also disclosed US$496 billion of unrecognised long-term customer commitments primarily related to AWS. As AWS continues to expand capacity to meet this demand, its outsized profitability should continue supporting Amazon’s consolidated operating margin.

Management expects the momentum to carry into 3Q FY2026, guiding operating income to a range of US$22.5 billion to US$26.5 billion, up from US$17.4 billion in the same quarter last year. This implies operating income is expected to grow materially faster than revenue growth in 3Q FY2026.

AI Spending Weighs on Cash Flow, but Leverage Remains Manageable

As Amazon continued ramping up its AI-related investments, trailing-12-month (TTM) reported free cash flow declined to negative US$7.6 billion from positive US$18.2 billion a year earlier. Cash-flow pressure intensified in 1HFY2026 as TTM capital expenditure grew 64.2% YoY to US$169.0 billion, substantially faster than operating cash flow, which rose 33.2% YoY to US$161.4 billion.

Amazon's balance sheet leverage was broadly stable quarter-on-quarter, even as its capex ramp continued. As at 30 June 2026, total debt (including lease liabilities) rose 6.7% QoQ to US$242.0 billion, from US$226.8 billion (see Table 1). This was driven in part by a further increase in long-term debt to US$128.9 billion, from US$119.1 billion in the previous quarter, as Amazon continued tapping debt markets to help fund its AI infrastructure build-out. Total assets grew faster over the quarter, up 19.5% QoQ to US$1.1 trillion (helped by an upward revaluation of Amazon’s Anthropic holdings), which pulled total debt-to-total assets down from 24.75% to 22.09%.

Cash and marketable securities fell 14.1% QoQ to US$123.0 billion, from US$143.1 billion, even as total debt continued to rise. This combination drove net debt up 42.1% QoQ to US$119.0 billion, outpacing the 24.8% QoQ growth in total equity to US$551.6 billion. As a result, net debt-to-total equity expanded to 21.57%, from 18.95% in 1QFY2026.

Total contractual commitments (including debt principal already recognised on its balance sheet) stood at US$650.0 billion as of end-June 2026, which also includes future interest payments. Within this, US$137.2 billion relates to lease commitments that have not yet commenced, primarily tied to future data centre and logistics capacity. Separately, Amazon also has a US$20.0 billion financing agreement with Anthropic, which was reduced to US$15.0 billion after Amazon exercised its US$5.0 billion option to participate in Anthropic’s latest equity financing. These commitments represent substantial future cash outflows beyond the lease and debt liabilities discussed above.

Taken together, Amazon's balance sheet remains strong, reflected in its relatively conservative debt ratios, and its financial flexibility remains intact for now. That said, continued negative free cash flow and rising debt or commitments could gradually narrow its historically wide rating headroom.

Table 1: Amazon’s Debt, Liquidity and Equity Position

As shown in Table 2, total debt-to-EBITDA edged slightly down to 1.43x, from 1.46x in the prior quarter, as EBITDA grew 8.4% QoQ to US$168.9 billion, outpacing the 6.7% increase in total debt (including lease liabilities) to US$242.0 billion, between the TTM periods ended March and June. However, interest coverage ratio (based on operating income) slipped to 28.13x, from 33.72x, as interest expense jumped 31.5% QoQ to US$3.3 billion - far outpacing the 9.7% QoQ growth in operating income.

Together, these ratios continue to indicate a comfortable credit profile. However, the sharp rise in interest expense is worth watching as it reflects the growing debt load taken on to fund AI infrastructure. If interest costs continue climbing faster than operating income, interest coverage could compress further even as total debt-to-EBITDA remains stable.

Table 2: Amazon’s Total Debt-to-EBITDA and Interest Coverage Ratios

Amazon’s 2031 Bond Appears Fairly Valued

The AMZN 4.800% 09Jul2031 Corp (USD) offers a yield-to-worst of 4.84% at an ask price of 99.83, a spread of approximately +51bps over the 5-year US Treasury (~4.33%), trading close to par (see Table 3). With approximately 4.93 years remaining to maturity, the bond may appeal to income investors seeking a meaningful yield without assuming excessive duration risk. The bond carries a strong investment-grade rating of A1 (Moody's), AA (S&P), and AA- (Fitch), reflecting Amazon's scale and diversified cash flows, even as the company works through a debt-funded capex cycle that has pushed leverage higher, as detailed earlier.

Against retail peers at a similar ~5-year tenor, Target's 7.000% notes due July 2031 yield 4.76% (+8bps) at A2/A/A- (one to three notches below Amazon), while Kroger's 7.500% notes due April 2031 yield 4.81% (+3bps) at Baa1/BBB rating (three to six notches below Amazon). In both cases, Amazon's bond offers a higher yield than these lower-rated peers, making it look attractively priced against retail comparables.

Against Alphabet and Microsoft, however, the picture is less compelling. Alphabet's 4.100% notes due February 2031 yield 4.71% (+13bps) at Aa2/AA+ (one notch above Amazon), and Microsoft's 1.350% notes due September 2030 yield 4.41% (+43bps) at Aaa/AAA, (two to four notches above Amazon) - both lower than Amazon's yield, broadly consistent with Amazon sitting one to four notches below these peers on the ratings scale.

Overall, Amazon's yield tracks its credit standing closely across both comparisons, suggesting the bond is fairly priced relative to peers at this tenor.

Table 3: Bond Comparisons – 2030s Maturities

Issuer	Issue	Ask Price (USD)	Yield to Worst (%)	Years to Maturity	Credit Ratings (Moody’s / S&P / Fitch)
Amazon.com Inc	AMZN 4.800% 09Jul2031 Corp (USD)	99.83	4.84	4.93	A1 / AA / AA-
Amazon.com Inc	AMZN 3.600% 13Apr2032 Corp (USD)	93.99	4.82	5.69	A1 / AA / AA-
Amazon.com Inc	AMZN 5.100% 09Jul2033 Corp (USD)	99.82	5.13	6.93	A1 / AA / AA-
Target Corp	TGT 7.000% 15Jul2031 Corp (USD)	109.73	4.76	4.95	A2 / A / -
Target Corp	TGT 4.500% 15Sep2032 Corp (USD)	99.19	4.65	6.12	A2 / A / -
Target Corp	TGT 4.400% 15Jan2033 Corp (USD)	97.86	4.79	6.45	A2 / A / -
Kroger Co	KR 2.200% 01May2030 Corp (USD)	91.20	4.80	3.74	Baa1 / BBB / -
Kroger Co	KR 1.700% 15Jan2031 Corp (USD)	87.56	4.85	4.45	Baa1 / BBB / -
Kroger Co	KR 7.500% 01Apr2031 Corp (USD)	111.08	4.81	4.66	Baa1 / BBB / -
Alphabet Inc	GOOGL 4.100% 15Feb2031 Corp (USD)	97.55	4.71	4.53	Aa2 / AA+ / -
Alphabet Inc	GOOGL 4.375% 15Nov2032 Corp (USD)	96.39	4.86	6.28	Aa2 / AA+ / -
Alphabet Inc	GOOGL 4.400% 15Feb2033 Corp (USD)	96.74	4.99	6.53	Aa2 / AA+ / -
Microsoft Corp	MSFT 1.350% 15Sep2030 Corp (USD)	88.63	4.41	4.12	Aaa / AAA / -
Microsoft Corp	MSFT 4.200% 03Nov2035 Corp (USD)	95.38	4.82	9.25	Aaa / AAA / -
Data as of 6 August 2026 Source: Bloomberg

For investors willing to take on the additional duration risk, we highlight Amazon's 5.450% notes due November 2055, which offer a similarly consistent picture against retail peers. Against Target's 4.800% notes due January 2053 (yield 5.84%) and Kroger's 5.500% notes due September 2054 (yield 6.19%), Amazon's 5.450% notes provide a pickup of 40bps and 5bps respectively.

Against higher-rated technology peers, the relationship holds consistently with credit quality. Amazon's 5.450% notes offer a modest 9bps pickup over Alphabet's 5.450% notes due November 2055 (yield 6.15%), consistent with Amazon sitting one notch lower on the ratings scale. Amazon's notes also provide around a 38bps to 40bps pickup over Microsoft's 4.000% notes due February 2055 (yield 5.86%) and 4.750% notes due November 2055 (yield 5.84%). This wider gap versus Microsoft is broadly consistent with the larger ratings differential, meaning investors extending duration to Amazon over Microsoft are compensated with a meaningfully higher yield for taking on that additional credit risk.

Overall, we view this as fairly priced, with Amazon's yield pickup broadly compensating for the credit differential at this tenor.

Table 4: Bond Comparisons – 2050s Maturities

Issuer	Issue	Ask Price (USD)	Yield to Worst (%)	Years to Maturity	Credit Ratings (Moody’s / S&P / Fitch)
Amazon.com Inc	AMZN 5.450% 20Nov2055 Corp (USD)	89.43	6.24	29.30	A1 / AA / AA-
Target Corp	TGT 4.800% 15Jan2053 Corp (USD)	86.12	5.84	26.45	A2 / A / -
Kroger Co	KR 5.500% 15Sep2054 Corp (USD)	90.86	6.19	28.12	Baa1 / BBB / -
Alphabet Inc	GOOGL 5.450% 15Nov2055 Corp (USD)	90.51	6.15	29.28	Aa2 / AA+ / -
Microsoft Corp	MSFT 4.000% 12Feb2055 Corp (USD)	74.34	5.86	28.52	Aaa / AAA / -
Microsoft Corp	MSFT 4.750% 03Nov2055 Corp (USD)	84.77	5.84	29.25	Aaa / AAA / -
Data as of 6 August 2026 Source: Bloomberg