🔍 Read the full analysis: Amazon’s Cash Spending And AI Ambitions Are Supporting AWS Growth on ThorstenMeyerAI.com
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TL;DR
Amazon said AWS revenue grew 39% to $46 billion in the third quarter, while its contracted future revenue backlog rose to $578 billion. The company spent $75.9 billion on capital investments during the quarter, and its trailing 12-month free cash flow was negative $42.4 billion; shares fell more than 6% in after-hours trading as investors weighed the spending and results against growth.
Amazon reported that Amazon Web Services revenue rose 39% to $46.0 billion in the July-to-September quarter, its fastest growth since late 2021, while the company spent $75.9 billion on cash capital investments. Amazon shares fell more than 6% in after-hours trading Thursday as investors weighed accelerating cloud demand against the scale of the AI and data-center build-out, negative free cash flow and results that missed some expectations.
AWS operating income increased 55% to $17.8 billion, according to Amazon’s October 29 earnings release. Chief Executive Andy Jassy said AWS had $578 billion in contracted future revenue, up from $496 billion three months earlier. The backlog is a measure of contracted business expected to be recognized over time; it is not cash already received or revenue earned in the quarter.
Chief Financial Officer Brian Olsavsky said the quarter’s capital spending 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 earlier in the year and raised that outlook in July, citing higher memory prices, according to the source material.
Amazon’s trailing 12-month free cash flow was negative $42.4 billion, compared with positive $14.8 billion a year earlier. Over the same 12-month period, operating cash flow was $168.3 billion, up 29%, while capital spending reached $210.7 billion, up 82%. The source estimates quarterly free cash flow at about negative $33.5 billion based on its own calculation; that figure is not presented as an Amazon-reported measure. Amazon’s long-term debt rose from $65.6 billion to $173.1 billion over the first nine months of the year.
The results also included areas that disappointed market expectations. Earnings per share were $1.89, below the $1.96 analysts expected, while advertising revenue missed estimates and Amazon’s holiday-quarter revenue forecast came in slightly below expectations, according to CNBC and the cited analyst data from LSEG and StreetAccount. The company’s shares fell more than 6% in after-hours trading.
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 AWS Capacity
The report puts the trade-off in Amazon’s AI strategy in sharp focus: cloud demand is accelerating, but serving that demand requires major spending before all of the capacity can generate revenue. Amazon is paying now for data centers, chips and equipment, while customer contracts are expected to produce revenue over time. The $578 billion backlog points to substantial contracted demand, but it does not establish when all of that business will be delivered or how profitable it will be.
For AWS customers, the immediate issue is access to computing capacity. The source reports that large blocks of AI capacity are being reserved in advance and that short-term capacity on older AI chips is being sold at a premium. Those conditions may affect availability and costs for companies training or running AI models, though Amazon’s results do not specify how broadly such constraints apply or how long they will last.
For investors, the question is whether AWS growth and future earnings can justify the current cash outlay and debt increase. Amazon says its owned chips and infrastructure help serve customers and control costs, but the results do not yet show the eventual return on all the spending. The share-price decline reflects a market reaction, not proof that the investments will succeed or fail.
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AWS Growth and Spending Plans
AWS revenue growth has accelerated for six consecutive quarters, according to the figures in the source: 17%, 20%, 24%, 28%, 37% and 39% from the second quarter of 2025 through the third quarter of 2026, excluding currency effects. Amazon described the latest quarter as its fastest AWS growth since the end of 2021. The rise in AWS operating income shows that the cloud unit also increased its reported operating profit during the quarter.
Amazon is investing in data centers and in its own silicon, including Trainium AI accelerators and Graviton processors. Jassy said the company is installing an AI accelerator about every 14 seconds and that revenue commitments for its chips had increased more than 20-fold in a year. Amazon also said customers saved more than $2 billion during the quarter by using its chips; that is the company’s estimate, not an independently verified result in the supplied material.
Depreciation and amortization, which spreads the cost of assets across their useful lives, rose 25% to $20.9 billion in the quarter. That reflects one way current investment can affect reported expenses over time. Amazon also announced a $1 billion “Built Together” program for communities near its U.S. data centers, including energy and water efficiency upgrades. The company has not disclosed how much of its overall capital spending is allocated specifically to power.
Returns on the AI Build-Out
Amazon has not given a timetable for when its current data-center and chip investments will produce returns sufficient to offset their upfront cost. The $578 billion backlog is contracted future revenue, but the material does not break down how much comes from AI workloads, when it will be recognized, or the margins attached to those contracts.
The company’s reported capital spending and free-cash-flow figures establish the scale of the cash gap, but do not by themselves show how much future demand will be sustained. Amazon cited memory costs and supply volatility as risks. The source also reports that Jassy argued owning or leasing infrastructure can yield better margins than renting capacity from specialist providers; that comparison is his competitive claim, not an audited industry-wide finding.
It remains unclear how the spending plan may change if component prices, power availability or customer demand shift. Amazon’s earnings release and call do not provide a full project-by-project breakdown of the $75.9 billion quarterly outlay, nor do they specify the share allocated to electricity and other energy infrastructure.
The Holiday Quarter and 2027
Investors will next compare Amazon’s holiday-quarter results with its forecast, which came in slightly below analyst expectations, and monitor whether AWS growth remains near its latest pace. Amazon has said it expects about $220 billion in capital spending during 2026 and meaningfully more in 2027, so updates to that outlook will help show whether the infrastructure build-out is expanding or changing course.
Customers and competitors will also be watching capacity availability and Amazon’s chip plans. The source says Amazon intends to sell Trainium chips outside AWS beginning in late 2027. That is a future plan, not a product launch already underway. The company has not provided further details here on the timing, scale or customer terms for those external sales.
For now, the confirmed picture is a fast-growing AWS business paired with unusually heavy investment and negative trailing free cash flow. Amazon’s next disclosures should clarify whether demand, cash generation and spending are moving toward a balance; the current figures do not settle that question.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% to $46.0 billion in the July-to-September quarter, according to Amazon. The company said this was its fastest growth since late 2021.
Why did Amazon shares fall after the results?
Shares dropped more than 6% in after-hours trading. Investors were weighing the $75.9 billion quarterly capital outlay and negative trailing free cash flow, alongside earnings per share, advertising results and a holiday-quarter revenue forecast that missed cited expectations. The source does not establish a single cause for the share move.
What does Amazon’s $578 billion AWS backlog represent?
It is the value of contracted future revenue reported by CEO Andy Jassy, up from $496 billion three months earlier. It is not revenue already earned or cash already collected, and the supplied material does not say when all of it will be recognized.
How much is Amazon planning to spend on capital investments?
Amazon expects to spend about $220 billion in 2026 and said spending in 2027 would be “meaningfully more.” Jassy said most of the 2026 plan is for AWS; the company has not supplied a full breakdown in the source material.
Does the backlog prove Amazon’s AI investments will pay off?
No. The backlog indicates contracted demand, but does not establish the timing, profitability or ultimate return on the related investments. Amazon’s reported cash spending, debt and free-cash-flow figures show the financial scale of the build-out, while its eventual returns remain uncertain.
Source: ThorstenMeyerAI.com
