Amazon Earnings: AWS Grows 39% but AI Spending Pushes Free Cash Flow to -$42.4 Billion

Amazon earnings for the third quarter of 2026, reported after the bell on Thursday, Oct. 29, showed Amazon Web Services growing at its fastest pace in nearly five years, but the Seattle company’s record spending on AI data centers pushed trailing 12-month free cash flow to negative $42.4 billion and sent the stock lower.

Net sales rose 12% to $201.9 billion from $180.2 billion a year earlier, and operating income climbed to $28.1 billion from $17.4 billion. Investors focused instead on cash: Amazon spent $77.3 billion on property and equipment in the quarter, more than double the $35.1 billion of a year earlier.

What Amazon reported for the third quarter

According to Amazon’s earnings release, net sales would have grown 13% excluding currency changes. The company said a shift of Prime Day into the second quarter this year cut about 400 basis points from third-quarter growth. North America segment sales rose 6% to $112.9 billion, and International sales rose 5% to $43.1 billion, or 8% excluding currency.

Net income was $20.7 billion, or $1.89 per diluted share, compared with $21.2 billion, or $1.95 per share, a year earlier. The year-ago quarter included $9.5 billion of pre-tax gains from Amazon’s investment in Anthropic, the AI company now preparing a public listing (see our report on the Anthropic IPO filing). CNBC reported that the per-share result trailed the $1.96 analysts had forecast, while revenue of $201.94 billion was slightly below the $202.31 billion estimate.

The operating margin reached 13.9%, which Amazon said was its highest ever. North America operating income nearly doubled to $8.7 billion from $4.8 billion, and International operating income rose to $1.6 billion from $1.2 billion.

AWS growth accelerates to 39%

AWS sales jumped 39% to $46.0 billion from $33.0 billion, and segment operating income rose to $17.8 billion from $11.4 billion. Amazon said the cloud unit now runs at an annualized revenue rate of $184 billion. Growth has accelerated for five straight quarters, from 17% excluding currency in the second quarter of 2025 to 39% now.

“There has never been a trillion dollar revenue business, and we may have two of them in the next 5-10 years,” CEO Andy Jassy said in the release. Amazon also said token volume on Bedrock, its service for running AI models, rose nearly 17-fold.

The data: capex and free cash flow

The spending behind that growth is the part of the report that moved the stock. Operating cash flow over the trailing 12 months rose 29% to $168.3 billion, but free cash flow over the same period swung to an outflow of $42.4 billion from an inflow of $14.8 billion a year earlier. Amazon kept its outlook for 2026 capital spending at about $220 billion.

Reuters reported that third-quarter capital spending of $77.26 billion was about $20 billion above the LSEG estimate, and that Jassy said spending would be “meaningfully more” next year. “The free cash flow looks like the ugly part of the report,” Dave Wagner, a portfolio manager at Aptus Capital Advisors, told Reuters. “Operations generated plenty of cash but their capex just absolutely swallowed it.”

The pattern mirrors what happened at Google’s parent a day earlier, when Alphabet stock fell after its free cash flow turned negative on AI infrastructure spending.

Advertising slows and the stock falls

Advertising services revenue grew 11% to $19.6 billion, or 12% excluding currency, slowing from 26% in the second quarter. Amazon attributed the slowdown to timing anomalies, mainly related to Prime Day, and said it projects advertising growth “in the high teens” in the fourth quarter. Reuters said the result was the first advertising miss in seven quarters, against an estimate of 18% growth.

For the fourth quarter, Amazon guided to net sales of $240.0 billion to $247.0 billion, up 12% to 16%, and operating income of $28.5 billion to $33.5 billion, compared with $25.0 billion a year earlier. Reuters said the $243.5 billion midpoint was below the LSEG estimate of $244.51 billion.

Shares closed Thursday at $243.79, down 4.3% in regular trading before the report, and fell as much as 7% after hours, Reuters reported. CNBC reported that the shares shed nearly 7% in premarket trading on Friday. Several analysts trimmed price targets while keeping positive ratings, according to CNBC: Morgan Stanley cut its target to $335 from $350, Bank of America to $317 from $320 and Goldman Sachs to $370 from $375, while Barclays set $365, Deutsche Bank $325 and Bernstein $320.

For more on Thursday’s market moves, see The Boston Report’s Oct. 29 business report.

Sources

• Amazon.com: Amazon.com Announces Third Quarter Results
• Reuters (via Euronext): Amazon sinks as AI spending eclipses fastest cloud growth in five years
• CNBC: Analysts react to Amazon’s third-quarter results
• CNBC: Amazon (AMZN) Q3 earnings report 2026