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TL;DR
Amazon said AWS revenue grew 39% in the third quarter, its fastest pace since late 2021, while the company spent $75.9 billion in cash on capital investments. Trailing 12-month free cash flow fell to minus $42.4 billion, and Amazon expects about $220 billion in capital spending this year and meaningfully more in 2027.
Amazon reported 39% year-over-year growth at AWS for the third quarter, its fastest rate since the end of 2021, even as its cash capital spending reached $75.9 billion in the three months to September. The investment, which Amazon executives said is primarily directed to cloud infrastructure and artificial intelligence, helped push trailing 12-month free cash flow to minus $42.4 billion and drew investor attention to the time between paying for capacity and collecting revenue from it.
AWS revenue rose to $46.0 billion, and operating income increased 55% to $17.8 billion, according to Amazon’s October 29 results. The company said AWS growth has accelerated for six consecutive quarters, from 17% to 39% over that period, excluding currency effects. Its contracted future revenue, or backlog, reached $578 billion, up from $496 billion three months earlier, CEO Andy Jassy said during the earnings call.
The cash investment was considerably larger than AWS’s quarterly revenue, though the spending supports Amazon’s wider business and assets that can generate revenue over multiple years. Chief financial officer Brian Olsavsky said the quarter’s capital spending “primarily relates to AWS and AI.” Jassy said most of the roughly $220 billion in capital spending planned for 2026 is for AWS, and the company expects to spend “meaningfully more” in 2027.
Amazon generated $168.3 billion in operating cash over the 12 months through September, up 29%, while capital spending over that period was $210.7 billion, up 82%. That left trailing free cash flow at minus $42.4 billion, compared with positive $14.8 billion a year earlier. Amazon’s shares fell more than 6% in after-hours trading after the results, according to the source report. It also cited earnings per share of $1.89, below analysts’ $1.96 estimate, and weaker-than-expected advertising results and holiday-quarter revenue guidance.
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 financial trade-off behind AWS’s expansion: Amazon is paying for data centers, chips and related equipment ahead of the full revenue those assets may produce. The $578 billion backlog points to substantial contracted demand, but it is not cash already received. Revenue is recognized as services are delivered, while construction and equipment costs must be funded earlier.
For investors, that timing gap makes cash flow and investment returns central measures alongside AWS growth and operating income. Heavy spending can support future capacity and sales, but the reported figures do not establish how quickly each investment will earn a return. Amazon’s spending plans also make the pace of construction, equipment costs and cash generation important to its results over the coming quarters.
For AWS customers, the near-term issue is access to computing capacity. The source report says large blocks of AI capacity are being reserved well in advance and that some short-term capacity using older AI chips is selling at a premium. Amazon has not provided a broad measure of customer wait times or pricing, so the extent of any constraint is unclear. The company’s planned capacity could expand supply, but it takes time to build and bring facilities online.
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How Spending Outran Cash Generation
The acceleration in AWS growth has accompanied a sharp increase in investment. Amazon’s capital spending plan for 2026 was about $200 billion in February, according to the source report. In July, the company raised its estimate, citing higher memory prices. Its current expectation is about $220 billion for the year, with more spending anticipated in 2027.
Amazon’s property and equipment rose from $357.0 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. Amazon is also developing its own Trainium AI chips and Graviton processors. The company says chip revenue commitments rose more than 20-fold in a year and that customers saved more than $2 billion in the quarter by using its chips; those are Amazon’s figures, not independently verified measures in the supplied material.
Investment also becomes an expense over time. Amazon reported that depreciation and amortization rose 25% to $20.9 billion in the quarter, reflecting costs associated with equipment and other assets being recognized over their useful lives. The company’s longer-term spending decisions are also shaped by power and component availability: Amazon has cited energy prices and supply volatility, including for memory chips, as risks.
““Meaningfully more.””
— Andy Jassy, Amazon chief executive
Returns and Capacity Remain Unclear
Amazon has not disclosed how much of the planned investment will be spent on specific projects, how quickly each facility will become operational, or when the new capacity is expected to produce revenue. The company’s backlog indicates contracted future business, but the supplied material does not give a schedule for when that revenue will be recognized or how much of the backlog relates specifically to AI.
It is also unclear how long free cash flow will remain negative, what financing Amazon may use for continued investment, or whether component and energy costs will change its spending plans. Amazon said it expects substantially higher investment in 2027, but did not provide a precise figure. The source report gives long-term debt at $173.1 billion, up from $65.6 billion over nine months, but does not establish how much of the change is directly tied to the infrastructure build-out.
Amazon’s claims about customer savings from its chips and the margin disadvantage of renting capacity from specialized providers are company statements. The supplied material does not provide independent comparisons that would verify those figures.
Watch Cash Flow and 2027 Spending
The next indicators will be Amazon’s quarterly cash flow, capital spending and AWS operating results, alongside any updates to its investment plans. Investors will also be watching whether the company’s contracted demand translates into delivered services and revenue as new data center capacity comes online.
Amazon has said it expects about $220 billion in capital spending in 2026 and “meaningfully more” in 2027. Jassy also said Amazon plans to sell Trainium chips outside AWS starting in late 2027. The company’s next earnings report should provide an updated view of spending and cash generation; the source material does not specify its release date.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue increased 39% year over year to $46.0 billion in the July-to-September quarter, Amazon reported. The company described that as its fastest growth rate since the end of 2021.
Why did Amazon’s free cash flow turn negative?
Amazon’s investment spending exceeded the cash its operations generated over the trailing 12 months. It reported $210.7 billion in capital spending and $168.3 billion in operating cash for that period, resulting in free cash flow of minus $42.4 billion.
What is Amazon’s capital spending forecast?
Amazon expects about $220 billion in capital spending in 2026 and said spending in 2027 will be “meaningfully more.” Jassy said most of the 2026 plan is directed to AWS.
Does AWS’s backlog mean Amazon has already received the money?
No. The $578 billion backlog represents contracted future revenue, according to Jassy. The supplied material does not give a timetable for when that revenue will be recognized, and it is not cash already collected.
What is still unknown about the spending?
Amazon has not provided a detailed breakdown of spending by project, a precise 2027 investment figure, or a timeline for when each new facility will generate revenue. It is also unclear how long free cash flow will remain negative.
Source: ThorstenMeyerAI.com
