🔍 Read the full analysis: AWS Is Growing Rapidly, And Amazon Is Covering The Investment In Cash on ThorstenMeyerAI.com
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TL;DR
Amazon said AWS revenue rose 39% to $46 billion in the third quarter, while its contracted future revenue backlog reached $578 billion. The company spent $75.9 billion on capital investment during the quarter and reported negative trailing 12-month free cash flow of $42.4 billion; its shares fell more than 6% in after-hours trading.
Amazon reported 39% third-quarter growth in Amazon Web Services revenue on Thursday, but its shares fell more than 6% in after-hours trading as investors weighed the cloud unit’s momentum against the company’s $75.9 billion in quarterly cash capital spending. Amazon’s trailing 12-month free cash flow was negative $42.4 billion, as it invests heavily in data centers, chips and other equipment to meet demand for cloud and artificial-intelligence computing.
AWS revenue reached $46.0 billion for the July-to-September quarter, up 39% year over year, according to Amazon’s earnings release. Operating income at the cloud unit increased 55% to $17.8 billion. Amazon chief executive Andy Jassy said AWS had $578 billion in contracted future revenue, compared with $496 billion three months earlier. That backlog represents customer commitments to spend in the future, not revenue already received.
Chief financial officer Brian Olsavsky said the quarter’s $75.9 billion in cash capital spending was primarily related to AWS and AI. Jassy said most of Amazon’s roughly $220 billion investment plan for 2026 is directed to AWS, and that the company expects to spend “meaningfully more” in 2027. Amazon had raised its 2026 plan from about $200 billion in July, citing higher memory prices, according to the source report.
Amazon generated $168.3 billion in operating cash over the 12 months ending in the third quarter, up 29%, while capital spending over that period rose 82% to $210.7 billion. The resulting free cash flow was minus $42.4 billion, compared with positive $14.8 billion a year earlier. The reported quarterly earnings per share of $1.89 also fell short of analysts’ $1.96 estimate, while advertising revenue and the holiday-quarter revenue outlook were reported below expectations.
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 highlight a timing gap at the center of Amazon’s AI expansion: construction and equipment costs are paid upfront, while revenue from customer commitments arrives as capacity is installed and used over time. A growing backlog signals substantial demand, but it does not by itself establish when that demand will convert into cash or what returns the investment will earn.
For businesses using AWS, the build-out may affect the availability of computing capacity and the services they can purchase. The source report says some large AI-capacity blocks are being reserved well in advance, while short-term capacity on older AI chips is being sold at a premium. Those conditions could matter to customers planning AI deployments, though Amazon did not provide a broad timetable for when supply constraints will ease.
For investors, the immediate question is whether AWS growth and future earnings can justify the scale and duration of spending. The reported share decline followed not only the investment figures but also earnings and revenue expectations that missed forecasts. The market move does not establish how investors will respond to later results, or whether the spending will produce the returns management anticipates.
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AWS Growth and Spending Timeline
AWS’s reported growth has accelerated over six consecutive quarters, according to the source material: 17%, 20%, 24%, 28%, 37% and 39%, from the second quarter of 2025 through the third quarter of 2026, excluding currency effects. The latest result was the unit’s fastest growth since the end of 2021, as described in the source report. Amazon’s contracted future revenue backlog also rose by $82 billion in the quarter, from $496 billion to $578 billion.
Amazon’s property and equipment increased from $357.0 billion at the end of 2025 to $508.9 billion at the end of September, a rise of about $152 billion over nine months, according to the figures provided. Depreciation and amortization—the accounting expense that spreads the cost of assets over time—rose 25% to $20.9 billion in the quarter. That means equipment bought now can continue to affect reported costs in later periods.
Amazon is also developing its own Trainium AI chips and Graviton processors. Jassy said chip-business growth was in the triple digits and revenue commitments for the chips had risen more than 20-fold in a year. Amazon said customers saved more than $2 billion in the quarter by using its chips; that figure is the company’s estimate. The company has said it plans to sell Trainium chips outside AWS starting in late 2027.
Returns and Capacity Remain Unclear
Amazon has not disclosed how much of its planned spending will go to specific data-center projects, chips, power or other infrastructure, and the source material says the company did not provide a figure for power-related investment. Its stated spending plans also do not specify when the cash outflows will peak or when free cash flow might return to positive territory.
The $578 billion backlog is contracted future revenue, but the material does not give a schedule for when customers will use that capacity or how much operating profit it will generate. Amazon’s statements about customer savings from its chips and the financial advantages of owning capacity rather than renting it are company claims, not independently verified outcomes in the information provided. The scale of demand, the cost of meeting it and the eventual returns remain open questions.
The source report also describes a roughly $33.5 billion quarterly free-cash-flow shortfall as its own arithmetic; Amazon’s quoted figure is the trailing 12-month measure. Those time periods should not be conflated. The report says long-term debt rose from $65.6 billion to $173.1 billion over nine months, but does not establish that the increase funded the quarter’s investment spending.
Spending Plans and Holiday Results
Investors will be watching Amazon’s next earnings reports for evidence that AWS demand is converting into revenue and operating income while the company continues adding capacity. The company’s stated plan is about $220 billion of investment in 2026, with spending expected to rise meaningfully further in 2027. Future disclosures will clarify whether those plans change and how capital spending, depreciation and cash flow evolve.
The next near-term business test is the holiday quarter. Amazon’s revenue outlook came in slightly below analyst expectations, according to the source report, making sales and profitability across its retail and advertising businesses relevant alongside AWS performance. The timing of Trainium sales outside AWS is another longer-range milestone: Amazon has said those sales are planned to begin in late 2027.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% year over year to $46.0 billion in the July-to-September quarter, according to Amazon’s earnings release.
Why did Amazon shares fall after the results?
The source report says shares fell more than 6% in after-hours trading as investors focused on the scale of capital spending and negative free cash flow, as well as earnings per share, advertising and a holiday-quarter revenue outlook that came in below expectations.
What does Amazon’s $578 billion AWS backlog mean?
It is the amount of contracted future revenue Jassy said AWS had at the end of the quarter, up from $496 billion three months earlier. It is not cash already collected, and the source material does not specify when customers will use the services or when the revenue will be recognized.
How much is Amazon investing in 2026?
Amazon expects roughly $220 billion in investment during 2026, with Jassy saying most of it is directed to AWS. He also said Amazon expects to spend “meaningfully more” in 2027.
When might Amazon sell Trainium chips outside AWS?
Amazon has said it plans to begin selling its Trainium AI chips outside AWS in late 2027. The source material does not provide further details about customers, product availability or pricing.
Source: ThorstenMeyerAI.com
