🔍 Read the full analysis: Amazon Is Spending Cash To Keep AWS Growing At A Five-Year-High Pace on ThorstenMeyerAI.com
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TL;DR
Amazon reported that AWS revenue rose 39% in the third quarter, its fastest growth rate since late 2021, while its contracted future revenue backlog increased to $578 billion. The company also spent $75.9 billion in cash on capital investments during the quarter, and its trailing 12-month free cash flow fell to negative $42.4 billion; Amazon shares dropped more than 6% in after-hours trading.
Amazon reported 39% third-quarter revenue growth at AWS, its fastest pace since the end of 2021, while spending $75.9 billion in cash on capital investments during the same three months. The cloud unit’s growth and record contracted-revenue backlog point to strong demand, but Amazon’s trailing 12-month free cash flow fell to negative $42.4 billion, and its shares declined more than 6% in after-hours trading after the results.
AWS revenue reached $46.0 billion for July through September, up 39% year over year. The company’s operating income rose 55% to $17.8 billion. Amazon chief executive Andy Jassy said AWS had $578 billion in contracted future revenue, up from $496 billion three months earlier. That backlog represents contracted business to be delivered over time; it is not cash already received.
Amazon 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 toward AWS, and the company expects spending to be meaningfully higher in 2027. Amazon had raised its 2026 plan from about $200 billion in July, citing higher memory prices, according to the source report.
The cash-flow figures show the scale of the investment. Amazon generated $168.3 billion in operating cash over the 12 months through the third quarter, up 29%, while capital spending over that period reached $210.7 billion, up 82%. Free cash flow for the same 12-month period was negative $42.4 billion, compared with positive $14.8 billion a year earlier. The source report calculates quarterly free cash flow at about negative $33.5 billion; that figure is its calculation, not a separately stated company figure.
The share-price decline came as investors weighed the investment against other results. Amazon reported earnings per share of $1.89, below analysts’ $1.96 estimate, while advertising revenue also missed expectations, according to the figures cited in the source report. Its revenue forecast for the holiday quarter was slightly below analyst expectations. The results therefore combined rapid cloud growth with near-term cash demands and weaker-than-expected results or guidance in other areas.
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
Amazon is spending ahead of revenue as it builds data centers, buys equipment and develops its own chips. The $578 billion AWS backlog suggests customers have committed to substantial future business, but those commitments turn into revenue as services are delivered. Construction and equipment costs, by contrast, require cash before a new facility can generate revenue.
That timing matters to investors because heavy investment can leave less cash available in the near term, even when a business is growing and generating operating cash. It also carries the risk that capacity, equipment or power costs will not match the timing or economics of customer demand. Amazon has not said how much of its capital budget is devoted to each category, including power.
For cloud customers, the investment is tied to the availability of computing capacity, especially for AI workloads. The source report says large blocks of AI capacity are being reserved well in advance and that short-term capacity on older AI chips is selling at a premium. Those are reported market conditions, not a guarantee that every customer will face the same prices or wait times. Amazon also says customers saved more than $2 billion in the quarter by using its own chips; that is a company-reported figure.
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A Six-Quarter AWS Growth Run
AWS growth has accelerated for six consecutive quarters, according to the figures in the source report: 17%, 20%, 24%, 28%, 37% and 39% from the second quarter of 2025 through the third quarter of 2026. Those rates are reported excluding currency effects. The latest result puts AWS growth at its highest rate since late 2021, while the unit’s $17.8 billion operating income shows that it remains a major source of Amazon’s earnings.
Amazon says the investment is going into data-center buildings and equipment as well as its Trainium AI chips and Graviton processors. Jassy said the company is installing an AI accelerator about every 14 seconds. Amazon’s property and equipment increased from $357.0 billion at the end of 2025 to $508.9 billion at the end of September, according to the source report. Depreciation and amortization, which spreads the cost of assets over time, rose 25% to $20.9 billion in the quarter.
The company’s decision to build and own more capacity also reflects its view of cloud economics. Jassy argued that renting capacity from specialized cloud providers would reduce operating margins by about 35 percentage points. That is Amazon’s competitive argument, not an independently audited comparison provided in the source material. Amazon has said it plans to sell Trainium chips outside AWS beginning in late 2027, though further details were not provided.
“Primarily relates to AWS and AI.”
— Amazon CFO Brian Olsavsky
How Fast Spending Will Pay Back
Amazon has not disclosed a detailed breakdown of the $75.9 billion quarterly cash investment or its expected spending by project, including how much is for electricity and related infrastructure. The company’s forecast of about $220 billion in capital spending in 2026 and meaningfully more in 2027 gives a broad direction, but not a timetable for when the added capacity will contribute revenue or cash flow.
The backlog is a measure of contracted future revenue, not a guarantee that all of it will be recognized immediately or produce a specific profit margin. The source material does not give the backlog’s full delivery schedule or explain how much depends on AI services. It also does not establish how long current constraints in memory, power and AI-chip capacity will last, or how those costs will affect customer prices.
Amazon’s after-hours share decline followed results that included an earnings-per-share miss, an advertising miss and a holiday-quarter revenue forecast slightly below expectations. The source material does not establish how much of the stock move was driven by each factor. The quarterly free-cash-flow estimate of negative $33.5 billion is the source writer’s calculation; Amazon’s stated figure cited here is negative $42.4 billion over 12 months.
Watch Spending and Holiday Sales
Investors will look for Amazon’s next quarterly results and guidance for evidence that AWS demand is converting into delivered services and revenue, while tracking whether capital spending continues to rise as management expects. The key figures to compare are AWS growth, operating income, backlog, capital investment and free cash flow. Amazon’s 2026 spending plan remains about $220 billion, with management signaling a higher level in 2027.
The company’s holiday-quarter performance will also test the revenue forecast that came in slightly below analyst expectations. For cloud customers, developments to watch include capacity availability, pricing for short-term access to older AI chips, and any further information about Amazon’s plans to sell Trainium outside AWS from late 2027. Amazon has not provided a more specific timetable or customer terms for that planned sales expansion.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% year over year to $46.0 billion in July through September 2026. Amazon described this as its fastest growth since late 2021.
Why did Amazon shares fall after AWS growth accelerated?
Amazon shares fell more than 6% in after-hours trading after the results. The figures cited in the source report included $75.9 billion of quarterly cash capital spending, negative trailing 12-month free cash flow, earnings per share below analysts’ estimate, an advertising miss and a holiday-quarter revenue forecast slightly below expectations. The exact contribution of each factor to the share move is not established.
What does AWS’s $578 billion backlog represent?
It is the value of contracted future revenue that Jassy said AWS had, up from $496 billion three months earlier. It is not cash already collected, and the source material does not provide a full schedule for when the contracts will be recognized as revenue.
How much is Amazon planning to spend on capital investments?
Amazon expects to spend about $220 billion in 2026, with most of that amount going to AWS, according to Jassy. The company expects spending to be meaningfully higher in 2027, but the source material gives no exact 2027 figure.
What remains uncertain about the investment?
Amazon has not given a detailed breakdown of spending by project or said when the new capacity will produce enough revenue and cash to change free cash flow. The duration and financial effects of memory, power and AI-capacity constraints also remain unclear.
Source: ThorstenMeyerAI.com
