🔍 Read the full analysis: AWS Is Growing At A Five-Year-High Pace As Amazon Bets On AI on ThorstenMeyerAI.com
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TL;DR
AWS revenue increased 39% to $46.0 billion in the third quarter, its fastest growth since late 2021, while operating income rose 55%. Amazon reported $75.9 billion in cash capital spending for the quarter and negative trailing-12-month free cash flow; its shares fell more than 6% in after-hours trading as investors weighed the spending and other results.
Amazon said AWS revenue rose 39% to $46.0 billion in the third quarter, its fastest pace since the end of 2021, as the company continued a costly build-out of cloud and AI infrastructure. AWS operating income increased 55% to $17.8 billion, but Amazon’s shares fell more than 6% in after-hours trading after the company reported heavy capital spending, negative free cash flow and results that missed some analyst expectations.
Chief Financial Officer Brian Olsavsky said the quarter’s $75.9 billion in cash capital spending was primarily related to AWS and artificial intelligence. Chief Executive Andy Jassy said most of Amazon’s roughly $220 billion capital spending plan for 2026 would go to AWS, and that spending in 2027 would be “meaningfully more.” Amazon had raised its 2026 estimate from about $200 billion in July, citing higher memory prices, according to the source report.
AWS’s contracted future revenue, known as its backlog or order book, reached $578 billion, up from $496 billion three months earlier, Jassy said on the earnings call. That figure reflects contracted business expected to be delivered over time; it is not revenue already earned. Amazon’s trailing-12-month free cash flow was negative $42.4 billion, compared with positive $14.8 billion a year earlier. The report attributes the decline to investment spending running ahead of cash generated by operations.
Amazon also reported earnings per share of $1.89, below the $1.96 analysts had expected, and advertising revenue fell short of estimates, according to the source report’s account of analyst data. Its sales forecast for the holiday quarter was slightly below expectations. The combination helps explain why strong AWS growth did not prevent a decline in the company’s shares after the results.
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 tension at the center of Amazon’s AI investment: demand for cloud capacity is accelerating, while building the infrastructure to serve it requires large payments now. Data centers, equipment, chips, power and memory add costs before customers use all the capacity or the contracted revenue is recognized. The $578 billion backlog signals substantial customer commitments, but does not by itself show when that revenue will arrive or what profit it will produce.
For AWS customers, the investment may mean more capacity for cloud and AI services, but availability is not uniform. The source report says large blocks of AI capacity are being reserved well in advance, while short-term access to older AI chips is selling at a premium. For investors, the issue is whether the future returns from this build-out will justify its cost and the pressure on cash flow. Those outcomes are not established by this quarter’s growth figures.
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Six Quarters of Faster AWS Growth
The third-quarter result extended a run of faster AWS growth. The source report lists year-over-year growth rates of 17%, 20%, 24%, 28%, 37% and 39% across six consecutive quarters beginning in the second quarter of 2025, excluding currency effects. It also reports that AWS operating income reached $17.8 billion, a 55% increase. AWS is therefore growing quickly and earning more, even as Amazon’s broader investment program absorbs cash.
Amazon said property and equipment rose from $357.0 billion at the end of 2025 to $508.9 billion at the end of September. Jassy said the company was installing an AI accelerator about every 14 seconds. Amazon designs its own Trainium AI chips and Graviton processors; Jassy said commitments for both chip lines had grown more than 20-fold in a year. The company also said customers saved more than $2 billion in the quarter by using its chips, a company-reported figure rather than an independent measurement.
Costs from these investments do not end when equipment is purchased. The report says depreciation and amortization rose 25% to $20.9 billion in the quarter, reflecting the accounting cost of assets spread over time. Amazon has also said memory prices and supply volatility are risks. Jassy argued that owning or leasing infrastructure long term can be more profitable than renting capacity from specialized providers; that comparison is his competitive argument, not an audited industry-wide measure.
Returns Depend on Future Demand
The filings and earnings call establish the size of Amazon’s spending, AWS’s reported growth and the backlog figure. They do not establish how quickly the backlog will turn into revenue, how much profit it will generate, or when free cash flow might recover. The source material also does not specify how much of the capital spending is allocated to power, memory, individual data-center projects or particular AI products.
Amazon’s statements about customer savings from its chips and the economics of owning infrastructure are company claims. The source report does not provide independent verification of those comparisons. It is also unclear how much the weaker-than-expected advertising and holiday-quarter revenue outlook contributed to the after-hours share decline relative to concerns about investment and cash flow.
Spending and Capacity in 2027
Investors will watch Amazon’s holiday-quarter results and later earnings reports for updates on AWS growth, capital spending, operating income and free cash flow. The company’s stated plan is about $220 billion in capital spending for 2026, with spending expected to be meaningfully higher in 2027. The next reports should show whether rising investment is accompanied by continued growth in customer use and revenue.
Customers and competitors will also be watching capacity availability, memory and energy costs, and Amazon’s plans for its in-house chips. The source report says Amazon plans to sell Trainium chips outside AWS beginning in late 2027. That is a future plan, not a product launch already completed; timing, availability and commercial terms remain to be seen.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue increased 39% to $46.0 billion year over year, the fastest pace since the end of 2021, according to Amazon’s results as described in the source report.
Why did Amazon shares fall after strong AWS growth?
The source report says shares fell more than 6% in after-hours trading. Investors were weighing $75.9 billion in quarterly cash capital spending, negative trailing-12-month free cash flow, earnings per share below analyst expectations, an advertising miss and a slightly weaker holiday-quarter revenue forecast. The precise contribution of each factor is unclear.
What does AWS’s $578 billion backlog mean?
It is the value of AWS’s contracted future revenue, which Jassy said rose from $496 billion three months earlier. It is not revenue already earned, and the source material does not specify exactly when the contracts will be recognized as sales.
What is Amazon forecasting for capital spending?
Amazon expects about $220 billion in capital spending in 2026, with most of that planned amount going to AWS, Jassy said. He also said spending in 2027 would be “meaningfully more.”
Source: ThorstenMeyerAI.com
