🔍 Read the full analysis: AWS Growth Is Moving Fast, While Amazon Pays The Cost In Cash on ThorstenMeyerAI.com
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TL;DR
Amazon said AWS revenue grew 39% in the third quarter, its fastest rate since late 2021, while AWS operating income rose 55%. The company also reported $75.9 billion in cash capital spending for the quarter and trailing 12-month free cash flow of minus $42.4 billion, as investors weighed rapid cloud growth against the cost and timing of its AI infrastructure build-out.
Amazon reported 39% third-quarter revenue growth at AWS, its fastest pace since the end of 2021, while spending $75.9 billion on capital investments in the same three months. Trailing 12-month free cash flow fell to minus $42.4 billion, and Amazon shares dropped more than 6% in after-hours trading Thursday as investors weighed the cloud unit’s accelerating demand against the cash required to build capacity.
AWS revenue reached $46.0 billion in the July-to-September quarter, up 39% from a year earlier. Operating income increased 55% to $17.8 billion. Amazon’s figures show AWS growth accelerating for six consecutive quarters, from 17% in the second quarter of 2025 to 39% in the latest quarter, excluding currency effects.
Chief Executive Andy Jassy said AWS had $578 billion in contracted future revenue, up from $496 billion three months earlier. The $82 billion increase suggests customers are committing to substantial future cloud capacity, but it does not mean all of that revenue has already been earned or collected. The contracts are fulfilled over time as AWS provides services.
Chief Financial Officer Brian Olsavsky said the quarter’s $75.9 billion of cash capital spending primarily related to AWS and artificial intelligence. Amazon expects capital spending of about $220 billion in 2026 and said it anticipates meaningfully more in 2027. 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 12 months through the quarter, up 29%, while capital spending over that period reached $210.7 billion, up 82%. The resulting trailing-year free cash flow was minus $42.4 billion, compared with positive $14.8 billion a year earlier. The source article estimates quarterly free cash flow at about minus $33.5 billion based on its calculation; Amazon’s reported trailing-year figure is distinct from that estimate.
Other results also weighed on the market reaction. Earnings per share of $1.89 missed the $1.96 analyst estimate, according to figures cited from LSEG. Advertising revenue also missed expectations, and Amazon’s holiday-quarter revenue forecast was slightly below forecasts, according to CNBC data cited in the source material.
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.
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The Cost of Building AWS Capacity
The results show a growing gap between customer commitments and the cash needed to serve them. AWS has a large contracted order book, but Amazon must fund data centers, servers, chips, power and other equipment before that capacity can generate revenue. The company is betting that future cloud and AI demand will justify spending now; the negative free cash flow reflects the timing and scale of that investment, not by itself whether those projects will earn an adequate return.
For cloud customers, the immediate question is whether AWS can bring enough capacity online to meet demand. Jassy said large blocks of AI capacity are being reserved well in advance, while short-term capacity on older AI chips is selling at a premium. That could affect availability and pricing for businesses seeking computing power, though the source material does not quantify any broad price changes.
For investors, rapid AWS growth is only part of the picture. They also have to weigh capital requirements, financing and returns over time, alongside results from Amazon’s retail and advertising businesses. The share-price decline followed a quarter in which AWS performed strongly but earnings and some forecasts fell short of expectations.
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Amazon’s Expanding AI Build-Out
Amazon has raised its investment plans as demand for AI computing and cloud services grows. The company planned about $200 billion in 2026 capital spending in February, then increased the outlook in July, citing higher memory prices. Jassy said most of the roughly $220 billion expected for 2026 would go to AWS. Amazon has not provided a detailed breakdown of the full spending plan by project or cost category.
The build-out includes data centers and computing equipment as well as Amazon-designed chips. Jassy said the company is installing an AI accelerator about every 14 seconds. Amazon also develops Trainium AI chips and Graviton processors. The company says its chip business is growing at triple-digit rates and that revenue commitments for the chips have increased more than 20-fold in a year. Those are company statements, not independently verified measures in the source material.
Amazon said customers saved more than $2 billion during the quarter by using its own chips. That figure is also Amazon’s estimate. Jassy argued that owning or securing capacity for the long term can be more attractive than renting it from specialist infrastructure providers, which he said can reduce operating margins. That comparison is his competitive argument, rather than an audited industry-wide finding.
As the assets enter service, their costs also appear over time through depreciation and amortization. Amazon reported those expenses rose 25% to $20.9 billion in the quarter. The company also cited memory costs and supply volatility as risks, and announced a $1 billion “Built Together” commitment for communities near its U.S. data centers, including energy and water-efficiency upgrades.
Returns and Capacity Remain Unclear
The reported figures do not show how quickly Amazon’s new capacity will produce revenue and profit, or what return the investment will earn. The $578 billion order book signals contracted future business, but the source material does not provide a schedule for when those contracts will be recognized as revenue or how much capacity they require.
Amazon has not disclosed a full breakdown of its capital spending among data centers, chips, power, memory and other equipment. It also has not quantified how much of its spending goes directly to energy infrastructure. The company’s estimates of customer savings from its chips and Jassy’s comparison with rented capacity were not independently verified in the supplied material.
The source reports that long-term debt rose from $65.6 billion to $173.1 billion in nine months, but does not provide enough detail to attribute that change solely to capital spending or to determine how Amazon will fund investment in subsequent years. It is also not clear how quickly reserved AI capacity will become available to customers or how long elevated demand and component constraints will persist.
Investors Watch Spending and Guidance
Investors will look for updates on AWS growth, capital spending and free cash flow in Amazon’s next quarterly results. The company’s current outlook calls for about $220 billion of capital spending in 2026 and meaningfully more in 2027, making the pace of investment and the conversion of contracted demand into revenue central measures to watch.
Customers and competitors will also be watching how quickly AWS brings AI capacity online, whether memory and other supply constraints ease, and whether access to computing remains limited or costly for some workloads. Amazon has said it plans to sell its Trainium chips outside AWS starting in late 2027; that is a future plan, not a current product availability date.
For now, the confirmed picture is a fast-growing cloud business alongside a substantial cash outlay. How much of that spending translates into sustained earnings, and how soon, remains to be seen.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% year over year to $46.0 billion in the July-to-September quarter. The company described that as its fastest growth rate since late 2021.
Why did Amazon’s free cash flow turn negative?
Amazon spent heavily on capital investments, including data centers and equipment. For the 12 months through the quarter, operating cash flow was $168.3 billion and capital spending was $210.7 billion, leaving free cash flow at minus $42.4 billion.
What does AWS’s $578 billion order book mean?
It is the amount of contracted future revenue Jassy said AWS had on its books, up from $496 billion three months earlier. It is not revenue already earned or cash already collected; AWS is expected to provide the contracted services over time.
How much does Amazon expect to spend in 2026?
Amazon expects about $220 billion in capital spending in 2026, with most of that amount going to AWS, according to Jassy. The company said it expects to spend meaningfully more in 2027.
Does negative free cash flow mean Amazon is losing money?
No. Free cash flow measures cash remaining after operating cash flow and capital investment, and it can turn negative when investment is very high. Amazon reported positive operating cash flow of $168.3 billion over the trailing 12 months, while capital spending exceeded that amount.
Source: ThorstenMeyerAI.com
