🔍 Read the full analysis: AWS Is Growing Quickly As Amazon Commits More Cash To AI on ThorstenMeyerAI.com
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TL;DR
Amazon reported third-quarter AWS revenue of $46 billion, up 39% year over year, and said its contracted future revenue backlog reached $578 billion. The acceleration comes alongside $75.9 billion in quarterly cash capital spending and trailing 12-month free cash flow of negative $42.4 billion. Amazon shares fell more than 6% in after-hours trading as investors weighed the investment bill and results that missed some expectations.
Amazon Web Services revenue climbed 39% to $46 billion in the third quarter, its fastest growth rate since late 2021, while Amazon reported $75.9 billion in quarterly cash capital spending as it expands data centers and AI infrastructure. The results highlight a widening gap between demand for cloud capacity and the cash Amazon must commit to building it; Amazon shares fell more than 6% in after-hours trading on Thursday.
AWS operating income rose 55% to $17.8 billion, according to Amazon’s October 29 earnings release. The company’s growth rate has accelerated for six consecutive quarters, from 17% in the second quarter of 2025 to 39% in the latest quarter, excluding currency effects, the source report said. AWS’s contracted future revenue backlog also increased to $578 billion, up from $496 billion three months earlier, CEO Andy Jassy said on the earnings call.
The spending is moving faster than the cash Amazon currently generates after investment. Its trailing 12-month free cash flow was negative $42.4 billion, compared with positive $14.8 billion a year earlier. Operating cash flow over that period was $168.3 billion, while capital spending was $210.7 billion, based on the figures in the source report. Amazon’s long-term debt rose from $65.6 billion to $173.1 billion over the first nine months of 2026.
Chief Financial Officer Brian Olsavsky said the quarter’s cash capital spending “primarily relates to AWS and AI.” Jassy said Amazon expects capital spending of about $220 billion in 2026, with “meaningfully more” in 2027, and that most of the 2026 spending is directed to AWS. That plan is up from the roughly $200 billion Amazon had projected in February; the company raised its estimate in July, citing higher memory prices, according to CNBC.
Investors also had reasons to focus on results beyond cloud growth. Amazon reported earnings per share of $1.89, below the $1.96 analysts expected, and advertising revenue missed estimates, according to the source report’s summaries of CNBC, LSEG and StreetAccount data. Amazon’s revenue forecast for the holiday quarter also came in slightly below expectations. The source report said the quarter’s free cash flow was about negative $33.5 billion, a calculation based on Amazon’s figures rather than a directly quoted company measure.
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 figures put a central question for cloud providers in focus: how quickly can they turn heavy spending on computing infrastructure into revenue and cash? Amazon’s $578 billion contracted backlog signals that customers have committed to future AWS services, but those contracts do not mean all the revenue arrives immediately. The company has to fund buildings, equipment, chips and other capacity before customers use it and payments flow in.
That timing matters for shareholders because AWS is a major profit engine for Amazon, but the wider company also has retail and advertising businesses that investors assess alongside it. Rapid cloud growth and higher AWS operating income support the case for continued investment; negative free cash flow, rising debt and earnings or sales below forecasts add pressure. The after-hours share decline reflects the market reaction, not proof that the investment will fail.
The build-out also affects organizations that rely on cloud computing and AI services. If capacity is booked well in advance, customers may have to plan workloads earlier or pay more for limited short-term access. Amazon’s chip strategy could also shape the choices available to AWS users, though the company’s claims about customer savings are its own and do not establish the savings any particular buyer will receive.
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AWS Growth and Spending Plans
Amazon’s third-quarter AWS growth follows a sustained acceleration described in the source report: year-over-year growth rose from 17% in the second quarter of 2025 to 20%, 24%, 28%, 37% and then 39% in the third quarter of 2026. The latest result is a sharp change from the slower growth AWS reported earlier in that sequence, while its $17.8 billion in operating income shows that the cloud unit remains profitable even as Amazon expands capacity.
Amazon is investing in both equipment and facilities. The source report says the company’s property and equipment increased from $357 billion at the end of 2025 to $508.9 billion at the end of September. Jassy said Amazon is installing an AI accelerator about every 14 seconds. The company designs its own Trainium AI chips and Graviton processors, and says revenue commitments for the two chip lines rose more than 20-fold in a year. Amazon also said customers saved more than $2 billion in the quarter by using its chips; that figure is the company’s estimate.
Jassy has argued that owning or securing long-term access to AWS capacity is preferable to renting from specialized cloud providers. He said renting capacity could reduce a cloud provider’s operating margin by about 35 percentage points. That is a competitive claim from Amazon’s chief executive, not an independently established measure. Amazon also announced a $1 billion “Built Together” commitment for communities near its U.S. data centers, including energy and water-efficiency upgrades.
Capacity Costs and Payback Remain Open
Amazon has not provided a detailed breakdown of the $75.9 billion quarterly spending by data-center construction, chips, power, memory and other equipment. The company has pointed to higher component costs, including memory, but the precise cost of energy and the share of its spending devoted to power are not specified in the source material.
The backlog is a measure of contracted future revenue, not cash already received, and its timing and profitability will depend on when customers use the capacity and the terms of their agreements. The source material does not give a schedule for when the $578 billion will be recognized as revenue. It also remains unclear how much of the planned spending will be funded by operating cash, additional borrowing or other sources.
Amazon’s claims about savings from its chips and the margin impact of renting capacity have not been independently verified in the source material. The company’s actual returns on its AI investments will also depend on demand, utilization, costs and competition over time. The current results establish rapid AWS growth and a large spending commitment, but they do not settle how quickly that investment will translate into stronger free cash flow.
Watch Spending and Holiday Sales
Investors will be watching Amazon’s next quarterly results for AWS growth, operating income, capital spending and updates on free cash flow. The company has projected about $220 billion in capital spending for 2026 and signaled a higher amount in 2027, so further guidance will help show whether the investment pace is changing.
The holiday-quarter revenue forecast also puts attention on Amazon’s retail and advertising performance, alongside cloud demand. For AWS customers, capacity availability, prices and the timing of new infrastructure will be relevant measures of how quickly Amazon’s build-out reaches users. Amazon has said it plans to sell its Trainium chips outside AWS starting in late 2027; that remains a future plan, rather than a current product launch.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% to $46 billion year over year in the July-to-September quarter, according to Amazon’s results and the source report.
Why did Amazon shares fall after the results?
Amazon shares fell more than 6% in after-hours trading. The source report points to the scale of capital spending and negative free cash flow, as well as earnings per share, advertising results and holiday-quarter revenue guidance that missed or came in below expectations.
What does Amazon’s $578 billion AWS backlog mean?
It is the value of AWS contracted future revenue that CEO Andy Jassy reported on the earnings call, up from $496 billion three months earlier. It is not revenue already collected; the source material does not provide a timetable for when the full amount will be recognized.
Is Amazon’s free cash flow negative?
Yes. The source report says Amazon’s trailing 12-month free cash flow was negative $42.4 billion, compared with positive $14.8 billion a year earlier. It attributes the gap to capital spending exceeding operating cash flow over that period.
How much does Amazon expect to spend on capital projects?
Amazon expects about $220 billion in capital spending during 2026 and has said it expects “meaningfully more” in 2027. Jassy said most of the 2026 plan is for AWS, with spending primarily related to AWS and AI.
Source: ThorstenMeyerAI.com
