🔍 Read the full analysis: Amazon’s Cash Spending Rises Alongside AWS’s Fastest Growth In Five Years on ThorstenMeyerAI.com
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TL;DR
Amazon reported 39% year-over-year AWS revenue growth in the third quarter, its fastest pace since late 2021, and said its contracted future revenue backlog reached $578 billion. At the same time, cash capital spending hit $75.9 billion for the quarter, free cash flow over 12 months turned negative, and Amazon shares fell more than 6% in after-hours trading.
Amazon reported that AWS revenue rose 39% year over year to $46.0 billion in the third quarter, its fastest growth rate since the end of 2021, while cash capital spending reached $75.9 billion. Amazon shares fell more than 6% in after-hours trading after the results, as investors weighed the cloud unit’s momentum against a costly data-center build-out, negative free cash flow and weaker-than-expected results in some other areas.
AWS operating income increased 55% to $17.8 billion, according to Amazon’s October 29 results. The company’s contracted future revenue backlog rose to $578 billion from $496 billion three months earlier, Chief Executive Andy Jassy said on the earnings call. That backlog signals substantial contracted demand, but it is revenue expected over time rather than cash already received.
Chief Financial Officer Brian Olsavsky said the quarter’s cash capital spending primarily related to AWS and AI. Jassy said most of Amazon’s roughly $220 billion planned capital spending for 2026 is expected to go to AWS, and that spending in 2027 would be “meaningfully more.” The company had raised its 2026 plan from about $200 billion in July, citing higher memory prices, according to the source material.
Amazon generated $168.3 billion in operating cash flow over the 12 months through the quarter, up 29%, while capital spending over that period was $210.7 billion, up 82%. The company reported trailing 12-month free cash flow of minus $42.4 billion, compared with positive $14.8 billion a year earlier. The source estimates quarterly free cash flow at about minus $33.5 billion based on its own calculation; Amazon’s reported trailing figure is the directly stated measure.
Other results added to the market’s concerns: earnings per share of $1.89 fell short of the $1.96 analyst estimate, advertising revenue missed expectations, and Amazon’s holiday-quarter revenue forecast was slightly below forecasts, according to CNBC reporting citing LSEG and StreetAccount data. Those misses were separate from AWS’s strong growth and helped shape the overall reaction.
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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AWS Demand Meets a Heavy Cash Bill
The results highlight a tension for Amazon and the wider cloud market: AI demand is translating into large orders, but meeting it requires data centers, chips, power and other equipment to be paid for before customers’ contracted revenue arrives. The $578 billion backlog is evidence of commitments, not a guarantee that all of that revenue will be recognized immediately or without changes.
For investors, the central issue is the timing and return on that spending. Amazon is still producing substantial operating cash, but its investment pace has overtaken that cash generation over the trailing year. A prolonged gap could keep free cash flow under pressure and make the company more sensitive to financing needs, while the equipment will also add costs over time through depreciation.
For AWS customers, capacity availability may matter as much as headline growth. The source says large blocks of AI capacity are reserved well in advance and that short-term capacity on older AI chips can command a premium. These conditions could affect when customers can obtain computing resources and what they pay, although Amazon did not provide a detailed customer pricing outlook in the supplied material.
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Amazon’s AI Infrastructure Expansion
Amazon’s reported investment reflects a broader build-out of cloud infrastructure. Its property and equipment rose from $357.0 billion at the end of 2025 to $508.9 billion at the end of September, a roughly $152 billion increase over nine months, according to the figures in the source material. Jassy said Amazon was “installing an AI accelerator about every 14 seconds,” describing the pace of deployment.
Amazon is also developing its own Trainium AI chips and Graviton processors. Jassy said revenue commitments for the chips had risen more than 20-fold in a year and described the chip business as growing at triple-digit rates. Amazon said customers saved more than $2 billion during the quarter by using its chips; that savings figure is the company’s claim, not an independently verified measure in the supplied reporting.
Costs extend beyond the initial purchase. Amazon’s depreciation and amortization expense rose 25% to $20.9 billion in the quarter, reflecting the accounting cost of assets over time. The company has also cited memory-component costs and supply volatility as risks. Amazon announced a $1 billion “Built Together” commitment for communities near its U.S. data centers, including energy and water-efficiency upgrades, but did not specify how much of its overall spending is going to power.
““Meaningfully more.””
— Amazon CEO Andy Jassy
Returns and Capacity Remain Unclear
The backlog does not reveal precisely when its contracts will convert into recognized revenue or how much profit they will ultimately generate. Amazon also has not provided a detailed timeline for when its current infrastructure investment will yield returns sufficient to ease pressure on free cash flow. The company’s 2026 spending plan and expectation of higher spending in 2027 indicate that the cash demands are not limited to this quarter.
Several figures and explanations come from company statements, including projected capital spending, chip-related customer savings and the pace of accelerator installation. The supplied material does not independently verify those claims. It also does not quantify the share of spending devoted to electricity and power infrastructure, or say how much short-term AI capacity constraints affect customers across AWS.
The reported quarterly free cash flow estimate of about minus $33.5 billion is the source author’s calculation, not a separately identified Amazon-reported figure. The company’s stated measure is trailing 12-month free cash flow of minus $42.4 billion.
Spending Plans and Customer Capacity
Investors will be watching Amazon’s subsequent results for updates to its capital-spending outlook, free cash flow and AWS growth. The company has said it expects about $220 billion in capital spending in 2026 and “meaningfully more” in 2027, making the pace and funding of the build-out important questions for coming quarters.
Customers and competitors will also watch whether Amazon can bring new capacity online quickly enough to meet contracted AI demand. The source material says Amazon plans to sell its Trainium chips outside AWS starting in late 2027. That plan could broaden the market for the company’s chips, but details on availability, commercial terms and customer adoption were not provided.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% year over year to $46.0 billion. The source describes this as the unit’s fastest growth since the end of 2021.
Why did Amazon shares fall after the results?
Shares fell more than 6% in after-hours trading. Investors were weighing the high infrastructure spending and negative free cash flow, alongside an earnings-per-share miss, weaker-than-expected advertising results and a slightly below-consensus holiday-quarter revenue forecast.
What does Amazon’s $578 billion AWS backlog mean?
It is AWS’s reported contracted future revenue, up from $496 billion three months earlier, according to CEO Andy Jassy. It represents expected revenue over time, not cash already collected or profit already earned.
How much is Amazon spending on capital projects?
Amazon reported $75.9 billion in cash capital spending in the third quarter. It expects about $220 billion for 2026 and said spending in 2027 would be “meaningfully more.”
Is Amazon’s free cash flow negative?
Yes. Amazon reported trailing 12-month free cash flow of minus $42.4 billion, compared with positive $14.8 billion a year earlier. The roughly minus $33.5 billion estimate for the quarter alone is a calculation in the source article, not the company’s stated trailing measure.
Source: ThorstenMeyerAI.com
