July 31 (Reuters) - Amazon ( AMZN ) shares jumped more than 12% before the bell on Friday after the e-commerce and cloud giant posted its strongest cloud growth in over four years, bolstering investor confidence that its multibillion-dollar AI bets are driving a fresh wave of demand.

The rally put Amazon ( AMZN ) on track to add about $300 billion in market value, as investors looked past a 10% increase in planned capital expenditure to $220 billion and instead focused on booming demand at Amazon Web Services (AWS), the profit engine at the center of the company's AI push.

The reaction was in sharp contrast to Alphabet's earnings last week, when the Google-parent's shares stumbled after it reported its first negative cash flow, which stemmed from rising AI-related spending.

"The market is becoming increasingly idiosyncratic, rewarding companies that can successfully monetize AI investments while penalizing those with longer-duration paths to generating returns," said Jake Behan, head of capital markets at Direxion.

Revenue at Amazon Web Services, the cloud computing unit, jumped 37% to $42.2 billion in the second quarter ended June 30, handily beating analysts' consensus estimate of a 31.21% increase, according to data compiled by LSEG.

Amazon ( AMZN ) CEO Andy Jassy said demand remained so strong that the company's computing capacity proved insufficient to serve customers despite raising its capital spending.

At least five brokerages raised their price targets on the stock following results.

"We're encouraged by the strength in the core AWS business, which has a high correlation with AI revenue, and we expect this relationship to further strengthen over time as more AI workloads move into full-scale production and drive additional demand for core services," J.P. Morgan said in a note.

A spending surge from big technology firms, set to exceed $700 billion this year, has raised debt concerns and pressured free cash flow across the board.

Amazon's ( AMZN ) free cash flow swung sharply negative, with the company burning $7.6 billion on a trailing 12-month basis in the second quarter, versus $18.2 billion in positive free cash flow a year earlier.

Peers Microsoft, Alphabet and Meta also reported declines in free cash flow in their latest quarterly reports as they ramp up AI spending.

Amazon ( AMZN ) trades at a price-to-earnings ratio of 24.67, compared with Microsoft's 22.94 and Alphabet's 19.35.

(Reporting by Kanchana Chakravarty in Bengaluru; Additional reporting by Shashwat Chauhan; Editing by Shinjini Ganguli)