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TL;DR
Amazon reported 39% third-quarter growth at AWS and a $578 billion backlog of contracted future revenue. At the same time, it spent $75.9 billion on capital projects in the quarter, and trailing 12-month free cash flow fell to minus $42.4 billion. The company expects about $220 billion in 2026 capital spending and says it will spend meaningfully more in 2027.
Amazon reported 39% year-over-year growth at AWS in the third quarter, its fastest pace since late 2021, while spending $75.9 billion on capital projects in the three-month period. The company also disclosed a $578 billion AWS backlog of contracted future revenue, but its trailing 12-month free cash flow fell to minus $42.4 billion, putting the cost and timing of its AI infrastructure build-out in focus.
AWS revenue reached $46.0 billion for July through September, and operating income rose 55% to $17.8 billion, according to Amazon’s earnings release. Chief Executive Andy Jassy said the cloud unit’s contracted future revenue rose from $496 billion three months earlier to $578 billion. The backlog reflects contracted business to be delivered over time; it is not the same as revenue already earned or cash already received.
Chief Financial Officer Brian Olsavsky said the quarter’s $75.9 billion in cash capital spending primarily related to AWS and AI. Jassy said most of Amazon’s roughly $220 billion 2026 spending plan is for AWS, and that the company expects meaningfully higher spending in 2027. The company’s property and equipment balance increased from $357.0 billion at the end of 2025 to $508.9 billion at the end of September, according to the figures in its report.
Amazon generated $168.3 billion in cash from operations over the trailing 12 months, up 29%, while capital spending over that period reached $210.7 billion, up 82%. The resulting free cash flow was minus $42.4 billion, compared with positive $14.8 billion a year earlier. Amazon also reported third-quarter earnings per share of $1.89, below the $1.96 analysts expected, while advertising revenue and its holiday-quarter revenue forecast also fell short of expectations, according to CNBC’s reporting of analyst estimates.
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 is making: it is committing large sums to data centers, chips and related equipment in response to rising cloud demand, but the investment is reducing cash available after capital spending. The $578 billion backlog offers evidence of contracted demand, yet those commitments are fulfilled and paid over time. The infrastructure bill arrives earlier, while equipment costs also flow into results over multiple years through depreciation.
That timing matters to investors because strong AWS growth does not automatically translate into near-term free cash flow. Amazon shares fell more than 6% in after-hours trading after the report, according to the source account. The decline followed a quarter in which cloud performance was strong but spending was high and several retail-related measures missed expectations. The figures do not establish a single cause for the share move; they do show why investors may weigh the expected returns from AI capacity against the cash being deployed now.
For cloud customers, the near-term issue is capacity availability and cost. The source account says large blocks of AI capacity are being reserved ahead of use and that some short-term capacity on older AI chips is selling at a premium. Amazon’s own chips, including Trainium, could help it supply more computing capacity and control some costs, but its claims about customer savings have not been independently verified in the material provided. For shoppers, the earnings miss and spending plan do not by themselves establish any change to prices, delivery service or the retail business.
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From Cloud Growth to AI Build-Out
AWS growth has accelerated for six consecutive quarters, according to the supplied account, moving from 17% to 20%, 24%, 28%, 37% and then 39%. The comparison is described as excluding currency effects. That run of faster growth gives Amazon a commercial rationale for expanding capacity, while the latest backlog increase suggests customers have signed up for more future AWS services.
Amazon has raised its capital spending outlook during 2026. The source account says the company planned about $200 billion in February and lifted the plan in July, citing higher memory prices. The current estimate is approximately $220 billion for 2026, with management signaling a further increase next year. Jassy said Amazon is installing an AI accelerator about every 14 seconds, a company description of the pace of deployment rather than an independently measured industry statistic.
The spending includes data-center buildings and equipment as well as Amazon-designed Trainium AI accelerators and Graviton processors. Jassy said revenue commitments for the chip lines rose more than 20-fold in a year and described growth in the chip business as triple-digit. Those are management statements. Amazon also says customers saved more than $2 billion in the quarter by using its chips; that figure is the company’s estimate, not an independently audited measure in the source material.
Returns Depend on Future Use
Amazon has not specified in the supplied material how quickly the new capacity will generate revenue or when free cash flow may recover. The backlog is contracted future revenue, but its value does not show precisely when customers will use the capacity, when Amazon will collect payment, or what margins the work will produce. The source account gives a quarter-only free-cash-flow figure of about minus $33.5 billion as its own arithmetic, but the reported trailing 12-month figure is the clearer company-level measure presented here.
Other details remain open. Amazon has not said how much of its capital spending is going to power infrastructure, and its future spending guidance is approximate. Management’s claims about savings from Trainium and the margin disadvantages of renting capacity from specialized providers are not independently established by the material supplied. The source says Amazon plans to sell Trainium chips outside AWS from late 2027, but does not provide a detailed launch schedule or expected sales.
Spending and Capacity in 2027
Investors will be watching Amazon’s next results for updates on AWS growth, capital expenditures, cash from operations and free cash flow, alongside any revision to the roughly $220 billion 2026 plan. Management has already said spending in 2027 will be meaningfully higher, but has not given a specific figure in the supplied account.
Cloud customers and competitors will also be watching how quickly Amazon brings new capacity online and whether its Trainium chips gain wider use. Amazon’s plan to offer Trainium outside AWS from late 2027 is a future milestone, not a current offering based on the information provided. Until the company reports more about deployment, customer uptake and returns, the scale of the backlog and the cash cost remain central measures of how its AI investment is progressing.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% year over year to $46.0 billion for July through September, according to Amazon. Its operating income increased 55% to $17.8 billion.
Why did Amazon’s free cash flow turn negative?
Amazon spent heavily on capital projects, including AWS and AI infrastructure. Over the trailing 12 months, capital spending was $210.7 billion while cash from operations was $168.3 billion, leaving reported free cash flow at minus $42.4 billion.
What does the $578 billion AWS backlog mean?
It is the value of AWS contracted future revenue reported by Andy Jassy, up from $496 billion three months earlier. It represents business expected to be delivered over time, not revenue or cash Amazon has already received.
How much does Amazon expect to spend on capital projects?
Amazon expects to spend about $220 billion in 2026, with most of that directed to AWS, according to Jassy. The company has said spending in 2027 will be meaningfully higher but has not provided a specific amount in the supplied material.
Does the report show that Amazon will raise retail prices?
No. The earnings figures and infrastructure spending do not establish a planned change to Amazon retail prices, delivery services or shopping policies. The company has not provided such a plan in the source material.
Source: ThorstenMeyerAI.com
