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TL;DR
Amazon said AWS revenue grew 39% in the third quarter, its fastest rate since late 2021, while operating income rose 55%. At the same time, the company spent $75.9 billion on capital projects during the quarter, reported negative trailing 12-month free cash flow and forecast about $220 billion in capital spending for 2026.
Amazon reported that AWS revenue rose 39% to $46.0 billion in the third quarter, its fastest growth pace since the end of 2021, while the company spent $75.9 billion on capital projects during the same three-month period. Amazon shares fell more than 6% in after-hours trading, as investors weighed the accelerating cloud business against heavy spending, 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 results. The company said AWS revenue growth has accelerated for six consecutive quarters, from 17% in the second quarter of 2025 to 39% in the latest quarter, excluding currency effects. Amazon chief executive Andy Jassy said AWS had $578 billion in contracted future revenue, up from $496 billion three months earlier.
The spending figure refers to cash capital expenditure, not total operating costs. Chief financial officer Brian Olsavsky said it primarily related to AWS and AI. Jassy said most of the roughly $220 billion Amazon expects to spend in 2026 would go to AWS, and the company expects capital spending to be “meaningfully more” in 2027. Amazon raised its 2026 spending plan from about $200 billion 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 months, operating cash flow was $168.3 billion and capital spending was $210.7 billion, based on the reported figures. The source’s estimate of roughly $33.5 billion in negative free cash flow for the quarter is its own calculation, rather than a figure identified as an official 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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AI Capacity Comes With a Cash Cost
The results show the trade-off Amazon faces as it expands infrastructure for cloud and AI services: demand and AWS earnings are rising, but building capacity requires cash well before all of that capacity produces revenue. The company’s $578 billion order book points to contracted future business, but it does not mean that the full amount is immediately collected or that every contract converts into profit on the same schedule.
For investors, the key question is whether the returns from data centers, chips and related equipment will justify the scale and timing of the outlays. The earnings release also included pressure points beyond capital spending: earnings per share of $1.89 missed analysts’ $1.96 estimate, advertising revenue fell short of expectations, and Amazon’s holiday-quarter revenue forecast was slightly below forecasts cited by CNBC, LSEG and StreetAccount. Those factors help explain why strong AWS growth did not prevent a negative market reaction.
For cloud customers, the build-out could affect access to computing capacity and the mix of chips available. The source reports that 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. Amazon’s investment pace may expand supply, but the company has not provided a complete timetable for when each new facility or chip deployment will become available to customers.
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How AWS Spending Has Accelerated
The third-quarter AWS growth figure fits a recent acceleration rather than standing alone. Amazon reported a sequence of year-over-year growth rates of 17%, 20%, 24%, 28%, 37% and 39% over six quarters beginning in the second quarter of 2025, excluding currency effects. The latest result is the fastest since late 2021, according to the supplied source material.
Amazon’s spending is adding to a large physical asset base. Its property and equipment rose from $357.0 billion at the end of 2025 to $508.9 billion at the end of September, an increase of about $152 billion over nine months. Jassy said Amazon was installing an AI accelerator about every 14 seconds. The company is also developing its Trainium AI chips and Graviton processors. Amazon said customers saved more than $2 billion in the quarter by using its own chips; that savings figure is the company’s claim.
Capital spending affects cash flow immediately, while the cost of equipment is also recognized over time through depreciation and amortization. Amazon reported that depreciation and amortization rose 25% to $20.9 billion in the quarter. The company’s spending plans therefore carry both a current cash cost and future accounting costs as facilities and equipment are used.
““meaningfully more””
— Amazon chief executive Andy Jassy
Returns and Capacity Timing Remain Open
Amazon has not disclosed how quickly its planned investments will generate revenue or the returns expected from each major data-center and chip project. The $578 billion order book represents contracted future revenue, but the company has not provided a schedule showing when that amount will be recognized as revenue or how much profit it will produce.
The source material also does not specify how much of the capital budget is allocated to power, nor does it give a detailed breakdown of spending by data center, chip type or customer workload. Amazon has cited higher memory costs and supply volatility as risks, but the eventual effect on project costs and delivery dates remains unclear. The company’s claim that renting capacity from specialized providers produces lower operating margins is a competitive argument, not an independently audited comparison.
It is also not yet clear how much the market reaction reflected capital spending, the earnings-per-share miss, advertising results or the holiday-quarter forecast. The reported after-hours share decline followed all of those developments, so the available information does not isolate a single cause.
Watch Spending and Holiday Demand
The next near-term indicators are Amazon’s holiday-quarter revenue and operating outlook, progress on AWS capacity, and any update to the company’s capital-spending plans. Investors will also look for evidence that new data centers and AI chips are being brought online and used at a pace that supports the contracted demand Jassy described.
Amazon has said it expects about $220 billion of capital spending in 2026 and “meaningfully more” in 2027. The timing of any change in free cash flow will depend on both investment levels and cash generated by operations. The company has also said it plans to sell Trainium chips outside AWS from late 2027; further details on availability and customer access have not been provided in the supplied material.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% to $46.0 billion year over year, according to Amazon. The company described it as its fastest growth pace since the end of 2021.
How much did Amazon spend on capital projects during the quarter?
Amazon reported $75.9 billion in cash capital spending for the quarter, primarily related to AWS and AI, according to CFO Brian Olsavsky.
Why was Amazon’s free cash flow negative?
For the 12 months covered, Amazon generated $168.3 billion in operating cash flow and spent $210.7 billion on capital projects. The company reported negative $42.4 billion in free cash flow for that period.
What does AWS’s $578 billion order book mean?
Jassy said AWS had $578 billion in contracted future revenue, up from $496 billion three months earlier. It signals substantial contracted demand, but it is not cash already collected and does not establish when the revenue will be recognized or what profit it will generate.
What is still unknown about Amazon’s AI spending?
Amazon has not provided a full project-by-project spending breakdown or a schedule for when the investments will produce returns. The timing of new capacity, the effect of supply costs and the pace of any free-cash-flow recovery also remain uncertain.
Source: ThorstenMeyerAI.com
