Key takeaways
- Amazon shares plunge 7% despite accelerating AWS growth
- Free cash flow swings $57 billion into negative territory
- Company plans $220 billion in 2026 capital spending
Amazon shares plunged as much as 7% in after-hours trading on October 29 after the company's artificial intelligence spending pushed its annual free cash flow deep into negative territory, despite record operating profitability.
According to Amazon's third-quarter earnings release, free cash flow deteriorated from positive $14.8 billion to negative $42.4 billion over comparable 12-month periods, representing a staggering $57.2 billion reversal.
Amazon's $220 Billion AI Spending Creates Massive Cash Deficit
Amazon generated $168.3 billion in operating cash flow during the 12 months ending September 30, a 29% increase from the previous year.
However, purchases of property and equipment, net of proceeds and incentives, reached $210.7 billion over the same period, overwhelming the cash generated by operations.
The company attributed much of the increase to AI infrastructure investments, including data centers, servers and specialized computing equipment.
Amazon also maintained its forecast of approximately $220 billion in cash capital expenditures for 2026, with CEO Andy Jassy signaling even higher investment in 2027.
The cash-flow deterioration has accelerated dramatically. Coinpaper previously reported Amazon's negative cash flow when the annualized deficit stood at $7.6 billion following the second quarter.
That figure has now expanded to $42.4 billion, raising questions about how quickly AI investments can translate into sustainable cash generation.
AWS Revenue Surges 39% as Operating Profit Hits Record
The financial results were not uniformly disappointing.
Amazon Web Services generated $46 billion in third-quarter revenue, up 39.3% year over year, marking its fastest growth in nearly five years.
AWS operating income jumped to $17.8 billion from $11.4 billion a year earlier, while Amazon's consolidated operating income reached a record $28.1 billion.
The company also reported $20.7 billion in quarterly net profit, demonstrating that negative free cash flow does not mean its businesses are unprofitable.
Nevertheless, Wall Street appeared more concerned about the timing of future returns than the strength of current earnings.
Amazon's cloud backlog reportedly reached $578 billion, reflecting substantial contracted demand. However, those commitments must still convert into recognized revenue and profitable operations.
The reaction mirrors Alphabet's recent cash-flow shock, when quarterly capital spending exceeded $51 billion despite surging Google Cloud revenue.
Both companies are investing heavily before knowing precisely how quickly their expanded computing capacity will generate returns.
Wall Street Questions AI Returns as Tech Spending Accelerates
Amazon's fourth-quarter revenue outlook added another concern.
The company forecast sales of $240 billion to $247 billion, with the $243.5 billion midpoint slightly below analysts' expectations of approximately $244.5 billion.
Advertising revenue also increased 12% to $19.6 billion, missing expectations as Prime Day's timing affected comparisons.
The latest results intensify broader questions about AI investment returns, particularly as companies commit hundreds of billions to infrastructure.
Microsoft's planned $25 billion bond offering reflects another dimension of the industry's financing requirements.
Meanwhile, the recent technology stock selloff demonstrates how investor sentiment has shifted from enthusiasm about AI demand toward scrutiny of spending efficiency.
