🔍 Read the full analysis: AWS’s Fast Growth Is Costing Amazon Cash. What Investors Should Know on ThorstenMeyerAI.com
Get smart everyday buys delivered free with Prime
- Fast, free delivery on millions of items
- Prime Video, Amazon Music and more included
- Member-only deals all year
TL;DR
Amazon reported 39% AWS revenue growth in the third quarter of 2026, its fastest pace since late 2021, while spending heavily on data centers, chips and other equipment. Trailing 12-month free cash flow fell to minus $42.4 billion, and Amazon shares dropped more than 6% in after-hours trading as investors weighed the cash demands and weaker-than-expected results in other areas.
Amazon reported that AWS revenue rose 39% in the third quarter of 2026, reaching $46.0 billion, while the company spent $75.9 billion on capital investments in the quarter, chiefly for data centers and AI, according to executives. The investment push coincided with trailing 12-month free cash flow of minus $42.4 billion and a more than 6% drop in Amazon shares in after-hours trading, as investors considered whether future cloud demand will justify the cash being spent now.
Amazon’s October 29 results showed AWS operating income rising 55% to $17.8 billion. The company’s release and earnings call also showed a sixth consecutive quarter of accelerating AWS growth, with growth rates rising from 17% to 39% since the second quarter of 2025, excluding currency effects. Chief Executive Andy Jassy said AWS had $578 billion in contracted future revenue, up from $496 billion three months earlier. That backlog points to substantial demand, but it represents contracts to be fulfilled over time rather than cash already received.
Chief Financial Officer Brian Olsavsky said quarterly cash capital spending was primarily related to AWS and AI. Jassy said most of Amazon’s roughly $220 billion capital spending plan for 2026 is directed to AWS, and the company expects spending to be “meaningfully more” in 2027. Amazon had planned about $200 billion for 2026 in February and raised that estimate in July, citing higher memory prices, CNBC reported. The company’s property and equipment rose from $357.0 billion at the end of 2025 to $508.9 billion at the end of September.
Amazon generated $168.3 billion in operating cash over the past 12 months, up 29%, while capital spending over that period reached $210.7 billion, up 82%. Free cash flow, which subtracts capital spending from operating cash flow, was minus $42.4 billion over 12 months, compared with positive $14.8 billion a year earlier. The source’s estimate for the quarter alone was about minus $33.5 billion, calculated from Amazon’s reported figures. Long-term debt increased from $65.6 billion to $173.1 billion over the first nine months of 2026.
The quarter also included results that fell short of some expectations. Earnings per share were $1.89, below analysts’ $1.96 estimate, while advertising revenue missed expectations and Amazon’s holiday-quarter revenue forecast was slightly below forecasts, according to CNBC citing LSEG and StreetAccount data. Amazon shares fell more than 6% after the results, although the earnings report does not establish that spending was the only reason for the decline.
Infographic 01 · The scorecard
Fastest cloud growth in five years, deepest cash gap.
Amazon’s third quarter (July to September 2026), scored against the four numbers from my 28 October preview.
The four numbers from my preview, scored for Amazon
Status chips: ok = healthy, hold = watch, urgent = warning sign. My assessment.
- 1 · Capex planAbout $220B for 2026, unchanged holdRaised from $200B in July, citing memory prices. 2027: “meaningfully more”, no number.
- 2 · Cloud vs. capexAWS +39%, operating income +55% holdGross capex +120% vs. a year earlier ($77.3B vs. $35.1B, my arithmetic). Revenue grows fast; spending faster.
- 3 · Free cash flow + fundingDeeply negative, financed with bonds urgentAbout −$33.5B in the quarter (my arithmetic). $48.1B of new long-term debt in Q3.
- 4 · CapacityCustomers take it as fast as it is installed okBacklog +$82B in one quarter. Big blocks reserved well in advance; visibility into 2027–2028.
What beat
- AWS revenue $45.98B vs. $45.29B expected
- AWS operating income $17.77B vs. $16.97B expected
- Operating margin 13.9%, Amazon’s highest ever
What missed
- Earnings per share $1.89 vs. $1.96 expected
- Advertising $19.64B vs. $20.82B expected
- Q4 revenue guide midpoint $243.5B vs. $244.5B expected
- Shares down more than 6% after hours (CNBC; GeekWire: more than 7%)
Sources: Amazon Q3 2026 release, 29 Oct 2026; Amazon Q3 call, third-party transcript; CNBC, 29 Oct; CNBC, 30 Jul; GeekWire, 29 Oct. Analyst expectations as reported by CNBC (LSEG, StreetAccount). Quarterly free cash flow and capex growth: my arithmetic from Amazon’s cash flow statement. Status chips: Thorsten Meyer.
Powered by Thorsten Meyer AI
The Cost of Building AWS Capacity
The figures put a central question for Amazon investors in focus: how quickly new infrastructure can generate cash. AWS is growing faster and has a large contracted backlog, but data centers, chips and equipment require substantial spending before customers use the capacity and payments arrive. Contracts support the case that demand exists; they do not, by themselves, show when revenue will be recognized or how profitable each commitment will be.
The investment also matters beyond Amazon’s share price. Cloud customers rely on available computing capacity for AI and other services, and Amazon says large blocks of AI capacity are being reserved well in advance. If the build-out meets demand, it could support AWS growth and give customers access to more computing resources. If construction, chip supply, power availability or customer uptake falls short of plans, the spending could weigh on cash generation for longer. The earnings release does not resolve that timing risk.
Products Worth Considering
FLEXISPOT EN1 Electric Standing Desk, 48 x 24 in, Black
Logitech MX Master 4 for Mac, Ergonomic Bluetooth Mouse with Haptic Feedback, Ultra-Fast Scrolling, USB-C Charging, for MacOS, iPadOS, Windo
Logitech MX Mechanical Wireless Illuminated Keyboard Tactile (Graphite)
As an affiliate, we earn on qualifying purchases.
How the AI Spending Expanded
Amazon’s spending plan has risen during 2026: the company initially expected about $200 billion in capital spending, then raised its forecast to roughly $220 billion in July. Jassy said the majority of the 2026 total would go to AWS. Olsavsky linked the latest quarter’s spending primarily to cloud and AI infrastructure, while Amazon has also cited higher memory costs and supply volatility as risks.
The build-out includes data-center property and equipment, as well as Amazon-designed chips. Jassy said the company installs an AI accelerator about every 14 seconds and that its Trainium and Graviton chip businesses are growing rapidly. Amazon said customers saved more than $2 billion in the quarter by using its chips; that is the company’s estimate. Jassy also said Amazon plans to sell Trainium chips outside AWS starting in late 2027. Depreciation and amortization rose 25% to $20.9 billion in the quarter, reflecting the fact that equipment costs are recorded over time as assets are used.
When Spending Becomes Cash
The company’s results show the scale of investment and AWS demand, but they do not specify when the spending will produce matching cash returns. Amazon has not said how much of its capital budget goes to power, nor does the reported backlog reveal the timing, margins or cancellation terms for every contract. The reported order-book figure is a management statement, not a measure of cash already collected.
It is also unclear how much of the after-hours share decline reflected free cash flow versus the earnings-per-share miss, advertising results, holiday-quarter guidance or broader market factors. Amazon has cited higher memory prices and supply volatility, but the available figures do not show how those costs will change as more facilities become operational. The company’s spending plans and customer demand may shift with capacity, component availability and energy costs.
Signals in Amazon’s Next Results
Investors will be watching subsequent earnings reports for changes in AWS growth, operating income and capital spending, as well as whether free cash flow begins to recover. Updates on data-center capacity, chip availability and the pace at which customers take up reserved capacity will help show whether the backlog is converting into revenue and cash on the expected schedule.
Amazon has said it expects to spend about $220 billion in 2026 and “meaningfully more” in 2027. The next concrete test is whether AWS growth and operating profit continue to advance alongside that investment, while the company delivers its holiday-quarter forecast. The timing of any improvement in free cash flow remains unconfirmed.
Key Questions
How fast did AWS grow in the third quarter of 2026?
AWS revenue rose 39% year over year to $46.0 billion, according to Amazon. The company said this was its fastest growth rate since the end of 2021.
Why was Amazon’s free cash flow negative?
Over the 12 months through the third quarter, Amazon generated $168.3 billion in operating cash and spent $210.7 billion on capital investment. With spending exceeding operating cash generation, reported free cash flow was minus $42.4 billion.
What is Amazon spending the money on?
Amazon executives said the spending is primarily for AWS and AI, including data centers, equipment and chips. Jassy said most of the company’s roughly $220 billion capital spending plan for 2026 is directed to AWS.
Does AWS’s $578 billion order book mean Amazon has received that money?
No. Jassy described the amount as contracted future revenue. It is not cash already collected, and the reported figure does not specify when all contracts will be fulfilled or how profitable they will be.
What should investors watch next?
Key indicators include AWS revenue growth and operating income, Amazon’s capital spending, free cash flow, and how quickly customers take up new capacity. Amazon has said it expects about $220 billion of spending in 2026 and “meaningfully more” in 2027.
Source: ThorstenMeyerAI.com
