🔍 Read the full analysis: AWS Growth Is Accelerating, And Amazon Is Paying The Bill In Cash on ThorstenMeyerAI.com
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TL;DR
Amazon said AWS revenue rose 39% to $46 billion in the third quarter, its fastest growth pace since late 2021, while operating income climbed 55%. At the same time, Amazon spent $75.9 billion on capital investments, free cash flow over 12 months fell to negative $42.4 billion, and its shares dropped more than 6% in after-hours trading.
Amazon reported 39% growth in Amazon Web Services revenue for the third quarter, reaching $46 billion, even as the company spent $75.9 billion on capital investments and its trailing 12-month free cash flow turned negative. The results, reported Thursday, sent Amazon shares down more than 6% in after-hours trading as investors weighed strong cloud demand against the cash required to build capacity and several results that fell short of expectations.
AWS operating income rose 55% to $17.8 billion. The revenue growth rate has accelerated for six consecutive quarters, from 17% in the second quarter of 2025 to 20%, 24%, 28%, 37% and now 39%, according to the company’s results, excluding currency effects. Amazon chief executive Andy Jassy also said AWS’s contracted future revenue, or order book, reached $578 billion, up from $496 billion three months earlier.
The investment spending is rising faster than the cash Amazon generates. The company reported $75.9 billion in cash capital spending for the quarter, primarily tied to AWS and artificial intelligence, according to chief financial officer Brian Olsavsky. Amazon expects capital spending of about $220 billion for 2026 and said it expects meaningfully more in 2027. Jassy said most of the planned 2026 spending is for AWS.
Amazon’s trailing 12-month free cash flow was negative $42.4 billion, compared with positive $14.8 billion a year earlier. Over that period, operating cash flow was $168.3 billion and capital spending was $210.7 billion. Amazon’s long-term debt rose from $65.6 billion at the end of 2025 to $173.1 billion at the end of September. The company also reported earnings per share of $1.89, below the $1.96 analysts expected, while advertising revenue missed expectations and its holiday-quarter revenue forecast was slightly below estimates, according to figures cited by CNBC.
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 AI Capacity
The results show the trade-off facing Amazon as it expands computing capacity to meet demand for cloud and AI services: contracted business is growing, but the equipment and facilities needed to deliver it require large payments before all the revenue arrives. The order book indicates customers have signed up for future AWS services; it does not mean Amazon has already collected that money or that all the work has been completed.
For investors, the question is whether future AWS revenue and profit will justify the scale and pace of current spending. AWS remained a large source of operating income in the quarter, but a weak free-cash-flow figure can weigh on how investors value the business, particularly when capital costs, financing and the timing of customer payments are uncertain. The share-price decline suggests the strong cloud result did not outweigh those concerns, alongside the earnings, advertising and holiday-forecast misses.
For cloud customers, investment could add capacity and expand access to AI services, but the source material says large blocks of AI capacity are often reserved well in advance and that short-term capacity on older AI chips can command a premium. The exact effect on customer prices, availability and service terms was not detailed in the earnings information. Amazon’s planned sale of Trainium chips outside AWS, expected from late 2027, could also broaden customer options if the plan proceeds.
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AWS Demand Meets Long Lead Times
Amazon has increased its investment outlook as demand for cloud computing and AI infrastructure has grown. The company’s 2026 spending plan was about $200 billion in February; Amazon raised it in July, citing higher memory prices, according to CNBC. The October results put expected 2026 spending at about $220 billion, with the company projecting a further increase in 2027.
Amazon said property and equipment increased from $357 billion at the end of 2025 to $508.9 billion at the end of September. Jassy said the company is installing an AI accelerator about every 14 seconds. He also said commitments for Amazon’s Trainium AI chips and Graviton processors increased more than 20-fold in a year, and that the chip business was growing at triple-digit rates. Those are company statements; Amazon’s reported customer savings of more than $2 billion from using its chips are also the company’s own figure.
Building capacity can involve long lead times: facilities, power and equipment have to be in place before customers can use them. The cost also continues after purchase. Amazon’s depreciation and amortization expense rose 25% to $20.9 billion in the quarter, reflecting the accounting cost of assets spread over time. That makes the immediate cash outlay and the eventual reported expense different measures of the same broad investment cycle.
““The majority” of the roughly $220 billion planned for 2026 goes to AWS.”
— Amazon CEO Andy Jassy, as quoted in the supplied earnings-call material
How Fast Spending Pays Back
The results do not specify when the $578 billion AWS order book will convert into collected revenue, or how much of it depends on customers using capacity that Amazon has yet to finish building. The company has not provided a precise forecast for when free cash flow will return to positive territory or how much additional borrowing may be needed to fund its investment program.
Amazon’s spending plan is also exposed to costs and supply constraints. The company cited memory prices and supply volatility among its risks, but did not break out the share of capital spending going to chips, buildings, power or other equipment. Its statements about customer savings from in-house chips and the margin effects of renting capacity from specialist providers are company claims, not independent assessments in the supplied material. It remains unclear how these factors will affect AWS margins, customer pricing and the availability of AI capacity.
Watch the Holiday Quarter
The next near-term test is Amazon’s holiday-quarter performance. Its guidance came in slightly below analysts’ expectations, according to CNBC’s cited estimates, so investors will be watching whether retail and advertising results improve and whether AWS growth remains near its current pace. Updates on capital spending, operating cash flow and free cash flow will help show whether the investment gap is widening or beginning to narrow.
Amazon has said it expects to spend about $220 billion in 2026 and meaningfully more in 2027. The company has also said it plans to sell Trainium chips outside AWS starting in late 2027. Until Amazon reports further results and gives more detail on project schedules, demand conversion and financing, the central issue remains how quickly new capacity can generate cash relative to what it costs to build.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% year over year to $46 billion in the third quarter, according to Amazon. The company described it as its fastest growth pace since the end of 2021.
Why did Amazon shares fall after AWS reported strong growth?
Amazon shares fell more than 6% in after-hours trading. Investors were weighing the company’s $75.9 billion quarterly capital spending and negative free cash flow, along with earnings per share, advertising revenue and holiday-quarter guidance that fell short of cited expectations.
What does Amazon’s $578 billion AWS order book represent?
It is AWS’s reported contracted future revenue, which Jassy said rose from $496 billion three months earlier. It represents future business commitments, not cash already received or revenue already recognized.
How much is Amazon planning to spend on capital investments?
Amazon expects capital spending of about $220 billion in 2026 and said it expects meaningfully more in 2027. Jassy said most of the 2026 amount is for AWS.
When might Amazon sell Trainium chips outside AWS?
Jassy said Amazon plans to offer its Trainium AI chips outside AWS starting in late 2027. The supplied material does not give further details on availability or customers.
Source: ThorstenMeyerAI.com
