Solid AWS revenue growth and margin expansion

Solid AWSrevenuegrowth and marginexpansion Target PriceUS$301.00(Previous TPUS$305.00)Up/Downside10.8%Current PriceUS$271.58 Amazon reported 2Q26 results on 31 July (BJT). Revenue of US$200.6bn(+19.6% YoY, vs. +13.3% in 2Q25) came in 2% ahead of both our forecast andVisible Alpha (VA) consensus, driven by beats in North America (NA) and AWS.Reported operating profit (OP) rose 43% YoY to US$27.5bn. Excluding twoexpense-related benefits totaling US$1.2bn, OP of US$26.3bn was up 37% YoYand still ahead of consensus (US$23.7bn), driven primarily by AWS. AWSrevenue growth accelerated to 37% YoY (1Q26: 28%; 2Q25: 18%), 4% aheadof consensus. Management guided 3Q26E revenueto be in the range ofUS$197-202bn (+9-12% YoY)and OP to be US$22.5-26.5bn (consensus:US$25.4bn). Weleave our 2026-2028E revenue forecasts broadly unchangedbutraise OP by 7-10%to reflect stronger-than-expected AWS marginexpansion. Our TP moves to US$301 from US$305, based on 17.2x EV/EBITDA(from 17.6x), in line with the three-year average trading range. Maintain BUY.AWS:both revenue growth and margin expansion better than China Internet Saiyi HE, CFA(852) 3916 1739hesaiyi@cmbi.com.hk Ye TAO, CFA(852) 3850 5226franktao@cmbi.com.hk expectation.AWS revenue rose 37% YoY to US$42.2bn, with OPM of39.4%,up 6.5ppts YoY on: 1) efficiency gains; 2) capacity optimization; and3) tight control of fixed costs. Excluding a US$600mn benefit from thechange in fair-value measurement of energy contracts subject to derivativeaccounting, OPM of 37.9% was still4.2ppts ahead of consensus. Cashcapex reached US$53.1bn (+69% YoY, +23% QoQ), and managementraised 2026E capex guidance to US$220bn (from US$200bn) on highermemory costs. Management defended the returns profile of the AWS build-out, noting that: 1) investment in servers and networking equipment takesslightly under three years on average to reach breakeven; and 2) serversnow carry a useful life of at least five to six years, with most AI capacitycontractedfor terms of five years or longer.AWS backlog reachedUS$496bn, up 36% QoQ, which we see as continued support for cloudrevenue growth. Management reiterated that capacity remains insufficientto meet the demand in 2026,and expects the same dynamic to persist into2027, adding thatthe level of demandthat Amazonalready have for 2028is also striking.North Americaand international OP broadly in line.NA revenue grew Wentao LU, CFAluwentao@cmbi.com.hk Shuyin GUO(852) 3916 3716guoshuyin@cmbi.com.hk 16.1% YoY to US$116.2bn (2Q25: +11.1%; 1Q26: +12.1%), 2% ahead ofconsensus, with OPM up 0.4pptsYoY to 7.9%. Excluding a US$600mntariff-related refund benefit,NAsegment OP of US$8.5bn was broadly inline with consensus. International revenue rose 14.8% YoY to US$42.2bn,with OPM flat YoY at 4.1%; both were broadly in line with consensus. Update onAI and silicon initiatives.In 2Q26: 1)Amazon's chip business(Graviton, Trainium and Nitro) reached a combined annual revenue run-rateof over US$25bn (1Q26: US$20bn), representing triple-digit YoY growth;and 2) AWS's AI business surpassed a US$25bn annual revenue run-rate,also growing at atriple-digit YoY rate. Source: FactSet Key financials Changes in forecast and valuation Source:Bloomberg,CMBIGM estimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in whole or in part, certifies thatwith respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or her compensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by The Hong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this research report 3 business days afterthe date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY :Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 monthsCMB InternationalGlobal MarketsLimited OUTPERFORMMARKET-PERFORMUNDER