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TL;DR
Amazon reported 39% third-quarter growth at AWS and a $578 billion contracted revenue backlog, while spending $75.9 billion on capital investments in the quarter. Free cash flow over the trailing 12 months fell to negative $42.4 billion, and Amazon shares dropped more than 6% in after-hours trading as investors weighed the investment bill and results below some expectations.
Amazon reported that AWS revenue rose 39% to $46.0 billion in the third quarter, its fastest growth since late 2021, while the company spent $75.9 billion on capital investments in the same three months. The results put a widening gap between demand for Amazon’s cloud and AI services and the cash required to build capacity at the center of investor attention; Amazon shares fell more than 6% in after-hours trading Thursday.
AWS operating income increased 55% to $17.8 billion, according to Amazon’s October 29 results. Chief Executive Andy Jassy said AWS’s contracted future revenue backlog reached $578 billion, up from $496 billion three months earlier. That backlog signals substantial contracted demand, although it represents revenue expected over time, not cash already received.
Chief Financial Officer Brian Olsavsky said the quarter’s capital spending primarily related to AWS and artificial intelligence. Amazon expects to spend about $220 billion in 2026, with meaningfully more in 2027, according to the earnings-call remarks cited in the source material. Jassy said most of the planned 2026 spending is directed to AWS. The company had raised its 2026 estimate from about $200 billion in July, citing higher memory prices.
Amazon’s free cash flow over the 12 months through the quarter was negative $42.4 billion, compared with positive $14.8 billion a year earlier. The company generated $168.3 billion in operating cash over that period, while capital spending reached $210.7 billion. The source’s estimate of roughly $33.5 billion in negative free cash flow for the quarter is its own calculation, not a separately stated Amazon figure. Amazon also reported earnings per share of $1.89, below analysts’ $1.96 estimate, and its holiday-quarter revenue forecast was slightly below expectations, according to the cited market data.
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 Demand Meets a Larger Cash Bill
The results show why rapid cloud growth does not automatically translate into stronger near-term cash flow. AWS is selling more services and reporting a larger backlog, but data centers, computing equipment, chips, memory and power infrastructure have to be funded before all the related customer revenue arrives. That timing gap is the central financial question raised by Amazon’s spending plans.
For investors, the trade-off is whether current investment can generate enough future revenue and profit to justify the cash outlay. AWS operating income grew faster than revenue in the quarter, but the company-wide free cash flow measure moved sharply into negative territory. The share-price decline followed that contrast as well as the earnings-per-share and forecast shortfalls; the source material does not establish one single cause for the market reaction.
For cloud customers, the build-out is tied to access to computing capacity. Jassy said major blocks of AI capacity are being reserved well in advance, and that short-term access to older AI chips is selling at a premium. If capacity remains constrained, businesses seeking to train or run AI systems may face delays, higher prices or choices among different chips and providers. Those customer effects are not quantified in the results provided.
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A Backlog Built Over Time
AWS’s growth has accelerated for six consecutive quarters, according to the source material: from 17% in the second quarter of 2025 to 20%, 24%, 28%, 37% and then 39% in the latest quarter, excluding currency effects. That trajectory gives context to the reported $82 billion increase in backlog during the quarter. The backlog is a measure of contracted future revenue, not a forecast that all of it will be recognized immediately.
Amazon is building capacity using both equipment and its own chip designs. Jassy said the company installs an AI accelerator about every 14 seconds and described triple-digit growth in its chip business. Amazon also said revenue commitments for Trainium AI chips and Graviton processors rose more than 20-fold in a year, and claimed customers saved over $2 billion in the quarter by using its chips. Those savings and growth figures are company statements.
Amazon’s property and equipment rose from $357.0 billion at the end of 2025 to $508.9 billion at September’s end, based on the figures in the source material. Depreciation and amortization, which allocates the cost of assets over time, climbed 25% to $20.9 billion in the quarter. The spending therefore affects cash immediately while equipment costs can also flow through operating results over multiple years.
“The majority of the roughly $220 billion planned for 2026 goes to AWS.”
— Andy Jassy, Amazon chief executive
Returns and Capacity Remain Unclear
The results do not specify when the $578 billion backlog will convert into recognized revenue or how much profit it will generate. Amazon has also not provided a detailed public breakdown of the $75.9 billion quarterly investment among data centers, chips, power and other equipment. Jassy pointed to memory costs, while Amazon’s guidance cited energy prices and supply volatility, including for memory chips, as risks.
It is also unclear how long free cash flow will remain negative, what level of spending Amazon expects beyond its current guidance, or when the new capacity will produce returns sufficient to offset construction and operating costs. Amazon’s claim that renting capacity from specialized cloud providers can reduce operating margins by about 35 percentage points is a competitive argument from Jassy, not an independently verified result in the material provided.
The share decline followed the earnings report, but the source does not isolate how much investors’ reaction reflected capital spending, the earnings-per-share miss, advertising results or the holiday-quarter forecast. Amazon did not say how much of its current spending is going to power infrastructure.
Watch Spending and AWS Delivery
The next evidence will come from Amazon’s subsequent quarterly results and updates to its investment outlook. Investors will be watching whether AWS growth and operating income continue to rise, whether the backlog expands or begins converting into reported sales, and how capital spending compares with cash generated by operations. The company’s stated plan calls for about $220 billion in capital spending during 2026 and meaningfully more in 2027.
Capacity, supply costs and timing will also matter to customers and shareholders. Amazon has said it plans to sell its Trainium chips outside AWS from late 2027, but the source material provides no further details about availability or terms. For now, the confirmed picture is rapid AWS growth financed alongside a very large infrastructure build-out; the pace of returns remains an open question.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% to $46.0 billion in the July-to-September quarter, according to Amazon. Operating income rose 55% to $17.8 billion.
Why did Amazon shares fall after the results?
Amazon shares fell more than 6% in after-hours trading. The results included negative trailing 12-month free cash flow, a $1.89 earnings-per-share figure below the cited analyst estimate of $1.96, and a holiday-quarter revenue forecast slightly below expectations. The available material does not identify a single cause for the decline.
How much is Amazon spending on AI and cloud infrastructure?
Amazon reported $75.9 billion in capital spending during the third quarter. It expects about $220 billion in capital spending for 2026 and said it expects meaningfully more in 2027; executives said most of the 2026 plan is for AWS.
What does AWS’s $578 billion backlog mean?
It is the value of AWS contracted future revenue cited by CEO Andy Jassy, up from $496 billion three months earlier. It represents revenue expected over time, not cash already collected, and Amazon has not specified in the supplied material when the full amount will be recognized.
When could Amazon sell Trainium chips outside AWS?
Jassy said Amazon plans to sell its Trainium AI chips outside AWS from late 2027. Details such as availability, pricing and the scope of the offering were not provided in the source material.
Source: ThorstenMeyerAI.com
