Amazon's AI Spending Drives Growth, Despite Crushing Free Cash Flow

Amazon's Q2 2025 earnings show that AI spending has crushed free cash flow, but the growth case for the company has strengthened. Despite a decline in stock price, shares are still up 15% since my Strong Buy rating, beating the S&P 500's 9.3% gain. Amazon is accelerating investments in artificial intelligence, which should drive future growth.

Amazon's Q2 2025 earnings report has sparked a mix of reactions among investors, highlighting the company's continued push into artificial intelligence (AI) and its impact on financial metrics. Despite a decline in stock price, shares of Amazon.com Inc. (NASDAQ: AMZN) have seen a 15% gain since the "Strong Buy" rating, outperforming the S&P 500's 9.3% increase [1].

Key highlights from the report include a 13% increase in net sales to $167.7 billion, up from $148.0 billion in the same quarter last year. Net income surged to $18.2 billion, or $1.68 per diluted share, compared to $13.5 billion, or $1.26 per diluted share, in Q2 2024. However, free cash flow decreased to $18.2 billion trailing twelve months (TTM), down from $53.0 billion TTM the year prior, primarily due to Amazon's ongoing capital expenditures (CapEx) on AI [1].

The company's AI investments have been significant, with the deployment of its 1 millionth robot and the introduction of its new AI foundation model to power its robotic fleet. These initiatives aim to reduce labor dependency, increase order accuracy, and improve warehouse efficiency, driving material cost savings [1].

Amazon's growth case remains strong, particularly in the AI and cloud computing sectors. The company's AWS division continues to be a major growth driver, with recent investments in cloud computing and AI. Additionally, Amazon Prime's subscription services generated $12.2 billion in revenue, a 12% increase from the same quarter last year, underscoring the service's continued popularity [2].

However, the company faces headwinds, including ongoing labor issues and competition in both the retail and tech sectors. Despite these challenges, Wall Street analysts maintain a strong consensus rating for Amazon, with all but one analyst assigning a "Buy" rating and the other a "Hold" rating. The median price target of $263.95 indicates potential upside of 15.26% from the current price [1].

In conclusion, while Amazon's Q2 2025 earnings report shows a decline in free cash flow due to AI spending, the company's growth prospects remain robust, particularly in AI and cloud computing. The stock's performance has been strong, beating the S&P 500's gain, and analysts maintain a bullish outlook on the company's future.

References:
[1] https://247wallst.com/investing/2025/09/02/amazon-stock-price-prediction-where-will-it-be-in-1-year/
[2] https://www.thestreet.com/retail/amazon-discontinues-a-free-prime-perk-customers-love