TL;DR
Amazon reported Q1 2026 revenue of $181.5 billion and net income of $30.3 billion, but $16.8 billion of pre-tax profit came from a mark-to-market gain on its Anthropic investment rather than operations. AWS grew 28 per cent to $37.6 billion at its fastest rate in three years, while free cash flow collapsed 95 per cent to $1.2 billion as capex hit $44.2 billion.
Amazon reported first-quarter 2026 net sales of $181.5 billion, a 17 per cent increase year on year that exceeded analyst estimates by more than $4 billion. Net income reached $30.3 billion, nearly doubling from $17.1 billion in the same period last year. Earnings per share came in at $2.78, crushing the $1.64 consensus. AWS revenue grew 28 per cent to $37.6 billion, its fastest growth rate in more than three years. Advertising revenue jumped 24 per cent to $17.2 billion. Capital expenditure hit $44.2 billion, up from $25 billion a year ago. The headline numbers were exceptional. The composition of the profit was more complicated.
Roughly $16.8 billion of Amazon’s pre-tax income for the quarter came from a revaluation of its investment in Anthropic, the AI company behind the Claude family of models. Amazon has committed up to $25 billion to Anthropic, and a portion of that investment was converted from convertible notes into preferred stock during the quarter, triggered by Anthropic’s most recent funding round. The accounting gain pushed Amazon’s $8 billion cumulative investment in Anthropic to a mark-to-market value exceeding $70 billion. Strip out the Anthropic gain, and Amazon’s operating profit was $23.9 billion, still strong by any standard, but the distinction matters. More than half of the net income that drove the earnings-per-share beat came not from selling products or cloud services but from owning a piece of a company that has not yet turned profitable.
The cloud engine
The operational story underneath the Anthropic gain is genuinely strong. AWS’s 28 per cent revenue growth represents an acceleration from 24 per cent in the previous quarter and is the division’s fastest growth since 2022. Operating income from AWS reached $14.2 billion, well above the $12.8 billion consensus. CEO Andy Jassy told analysts that AWS demand continues to outpace supply, with the backlog growing as enterprise customers commit to multi-year cloud and AI contracts.
Amazon’s custom chip business, covering Trainium, Graviton, and Nitro, now generates more than $20 billion in annualised revenue growing at triple-digit rates. Jassy has described it as potentially a $50 billion annual business if sold on the open market. Trainium2, Amazon’s AI training and inference accelerator, has largely sold out, and the next generation, Trainium3, which began shipping in early 2026, is nearly fully subscribed. Uber joined Amazon’s Trainium customer roster during the quarter, and Meta signed a multibillion-dollar deal for Graviton5 processors as AI compute demand outstripped its own infrastructure capacity. The custom chip strategy is turning AWS from a cloud platform into a vertically integrated compute provider that competes not just with Microsoft Azure and Google Cloud but, increasingly, with Nvidia.
The accounting question
The Anthropic investment gain raises a question that applies not just to Amazon but to every major technology company with large stakes in private AI companies. Under current accounting rules, Amazon must mark its Anthropic investment to fair value whenever a significant financing event provides a new reference price. Anthropic’s shares have been trading at an implied $1 trillion valuation on secondary markets, and the company is reportedly in early discussions for an IPO that could come as soon as October 2026. Each upward revaluation flows directly into Amazon’s net income, inflating earnings per share without any corresponding cash inflow.
This is not unique to Amazon. Alphabet holds a significant stake in Anthropic through Google’s own investment commitment. A Fortune analysis published the same day as the earnings noted that roughly half of both Amazon’s and Alphabet’s “blowout AI profits” in Q1 2026 came from their Anthropic stakes rather than from their actual operating businesses. The dynamic creates a situation where the AI companies that are spending the most on infrastructure, and generating the least free cash flow as a result, are simultaneously reporting record earnings because the private companies they have invested in are being marked up by other investors.
The cash flow problem
Amazon’s trailing twelve-month free cash flow compressed to $1.2 billion, a 95 per cent decline year on year. The collapse is almost entirely attributable to capital expenditure. Amazon spent $44.2 billion in the quarter on data centres, networking equipment, custom chips, and the physical infrastructure required to meet AI demand. The company has committed approximately $200 billion in total capex for 2026, making it the largest infrastructure spender among the hyperscalers in absolute terms.
The investment thesis is straightforward: AI demand is growing faster than capacity, and the companies that build capacity first will capture the most revenue. AWS’s 28 per cent growth rate validates that thesis in the near term. But the free cash flow compression means Amazon is, for now, a company whose reported earnings are rising while its actual cash generation is falling. The Anthropic gain masks this divergence in the headline numbers. Operating income of $23.9 billion is healthy. Free cash flow of $1.2 billion is not.
The guidance
Amazon guided second-quarter revenue of $194 billion to $199 billion and operating income of $20 billion to $24 billion, both assuming current tariff conditions hold. The guidance incorporates approximately $1 billion in incremental costs from Project Kuiper, Amazon’s satellite internet constellation, which is ramping manufacturing ahead of its service launch. The tariff caveat is notable. Amazon’s retail business depends on a global supply chain that crosses every major tariff boundary the current US administration has erected, and the company’s decision to flag tariff assumptions in its guidance suggests management views trade policy as a material risk to the second half of the year.
The stock rose on the results, which in isolation were unambiguously strong. Revenue beat. Operating income beat. AWS accelerated. Advertising grew. But the quarter also illustrated the degree to which Big Tech earnings in 2026 are being shaped by accounting conventions as much as by operational performance. Amazon’s best quarter in years was powered in significant part by a $16.8 billion paper gain on an investment in a company that is spending money faster than it is making it. The operating business is performing well. The question is whether the market is pricing the operating business or the Anthropic stake, and what happens to the earnings narrative if Anthropic’s next valuation event is flat rather than up.
