🔍 Read the full analysis: AWS Is Growing At A Five-Year High. How Does AI Fit In? on ThorstenMeyerAI.com
Get hardware and tech essentials delivered free with Prime
- Fast, free delivery on millions of items
- Prime Video, Amazon Music and more included
- Member-only deals all year
TL;DR
AWS revenue increased 39% to $46 billion in the third quarter, the fastest growth rate since late 2021, and its contracted future revenue reached $578 billion. Amazon is investing heavily in data centers, equipment and AI chips: quarterly cash capital spending was $75.9 billion, while free cash flow over the past 12 months was negative $42.4 billion. The company says much of its planned spending supports AWS and AI, but the timing of returns and the effect on cash flow remain key concerns.
Amazon Web Services grew 39% to $46.0 billion in the third quarter of 2026, its fastest growth since the end of 2021, as Amazon ramped up spending on data centers, equipment and AI chips. The cloud division also reported operating income up 55% to $17.8 billion, while Amazon’s quarterly cash capital spending reached $75.9 billion and its 12-month free cash flow turned negative.
Amazon reported the results on October 29. AWS’s 39% growth marked its sixth consecutive quarter of accelerating growth, according to the company’s figures excluding currency effects. The sequence rose from 17% in the second quarter of 2025 to 20%, 24%, 28%, 37% and then 39%. AWS’s contracted future revenue, or order book, increased to $578 billion from $496 billion three months earlier, CEO Andy Jassy said on the earnings call.
Amazon spent $75.9 billion in cash capital expenditures during the quarter, mainly on property and equipment. CFO Brian Olsavsky said that spending “primarily relates to AWS and AI.” Jassy said the majority of the roughly $220 billion Amazon expects to spend in 2026 is for AWS, and that spending in 2027 will be “meaningfully more.” Amazon raised its 2026 spending plan from about $200 billion in July, citing higher memory prices.
The investment coincided with a sharp change in cash flow. Over the 12 months through September, Amazon generated $168.3 billion in operating cash flow, up 29%, while capital spending reached $210.7 billion, up 82%. Free cash flow for that period was negative $42.4 billion, compared with positive $14.8 billion a year earlier. The company’s property and equipment rose from $357.0 billion at the end of 2025 to $508.9 billion at the end of September.
Amazon’s broader results also gave investors reasons for concern. Earnings per share of $1.89 fell short of the $1.96 analysts expected, and advertising revenue missed expectations, according to figures cited by CNBC. Amazon’s revenue forecast for the holiday quarter was slightly below analysts’ estimates, CNBC reported. Its shares fell more than 6% in after-hours trading following 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.
Powered by Thorsten Meyer AI
AI Demand Meets Amazon’s Cash Bill
The results show the central financial tension in Amazon’s AI expansion: cloud demand is growing quickly, but building capacity requires large payments before all of that capacity can generate revenue. The $82 billion increase in AWS’s order book in one quarter suggests customers are committing to future cloud services. Those contracts are not the same as cash already collected, and the revenue is expected to arrive over time as AWS provides the capacity and service.
For Amazon, the scale and pace of investment could shape cash flow, borrowing needs and the returns investors expect from its cloud business. Long-term debt rose from $65.6 billion to $173.1 billion over nine months, according to the source material. The company has not tied that increase solely to AI spending, so it should not be read as a direct measure of the cost of the build-out. Amazon’s reported negative free cash flow does, however, show that its current investment spending exceeds the cash remaining after operations.
For AWS customers, available capacity and pricing are practical concerns. Jassy said large blocks of AI capacity are being reserved well in advance and that short-term capacity on older AI chips is selling at a premium. That could affect how quickly companies can launch or expand AI workloads and how much they pay for scarce computing resources. Amazon has not provided a general estimate of customer price changes.
The spending also reflects a competitive choice. Amazon is building and owning or leasing infrastructure rather than relying entirely on outside capacity providers. Jassy argued that renting from specialized cloud providers would produce lower operating margins for a cloud company. That is Amazon’s competitive rationale, not an independently audited comparison. The scale of the planned build-out means execution, chip supply, power availability and eventual use of the new capacity will matter alongside AWS’s revenue growth.
Products Worth Considering
Apple MacBook Pro 14-inch Laptop with M5 Pro chip, 18-core CPU, 20-core GPU, 24GB Unified Memory, 2TB SSD, Wi‑Fi 7 – Space Black
Apple MacBook Pro with M5 Max 18-core CPU 20-core GPU 14.2-inch Display 48GB Memory 2TB SSD Space Black
Apple MacBook Pro 14.2 with M5 Pro Chip, 18-Core CPU / 20-Core GPU, 64GB RAM, 1TB SSD, Silver
As an affiliate, we earn on qualifying purchases.
A Six-Quarter AWS Acceleration
AWS’s growth has picked up over six consecutive quarters, reaching 39% in the latest period. The cloud division’s operating income rose faster than its revenue, increasing 55% to $17.8 billion. That profit growth offers evidence that AWS is currently earning more from its existing business even as Amazon commits substantial cash to expanding capacity.
Amazon’s AI infrastructure includes its Trainium accelerator chips and Graviton processors, as well as data centers and networking equipment. Jassy said Amazon is installing an AI accelerator about every 14 seconds. He also said revenue commitments for the company’s chips had increased 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 own estimate.
Amazon’s Bedrock service lets AWS customers run AI models from providers including Anthropic, OpenAI and Moonshot. The company says most of Bedrock runs on Trainium. Amazon has also said it plans to sell Trainium chips outside AWS beginning in late 2027, extending its chip strategy beyond the cloud services it operates itself.
Capital spending has also begun to affect reported costs. Depreciation and amortization—the accounting expense that spreads the cost of long-lived assets over time—rose 25% to $20.9 billion in the quarter. As newly purchased equipment is put into service, its cost can continue to appear in expenses over several years, even after the initial cash payment has been made.
““Meaningfully more.””
— Andy Jassy, Amazon chief executive
Returns and Capacity Still Unclear
The results do not specify how quickly each part of the new infrastructure will be completed, put into service or earn a return. AWS’s $578 billion order book represents contracted future revenue, but Amazon has not given a schedule for when that amount will be recognized or how much it will contribute to profit. The pace of customer deployment and the mix of services used will affect the timing.
Amazon also has not broken out the $75.9 billion quarterly capital spending figure in enough detail to show the share going to AI, conventional cloud expansion, power or other equipment. Jassy said most of the 2026 spending plan goes to AWS, and Olsavsky said the quarter’s spending primarily related to AWS and AI, but those statements do not provide a precise allocation. The company has cited memory costs, energy prices and supply volatility as risks.
The company’s claims about customer savings from its chips and the margin effects of renting outside capacity have not been independently established in the information available. It is also unclear how long capacity shortages will persist, how they may affect customer prices, and how the holiday-quarter results will compare with the forecast that missed analyst expectations.
Spending Plans and Chip Sales Ahead
Amazon expects capital spending of about $220 billion in 2026 and says its 2027 spending will be “meaningfully more.” Investors and AWS customers will have further evidence to assess the investment as Amazon reports later quarters, including whether new capacity is coming online and whether AWS revenue and operating income continue to grow alongside spending.
AWS customers will also be watching for updates on access to AI computing capacity, particularly for large workloads and older chips available on short notice. Amazon has announced a plan to sell Trainium chips outside AWS from late 2027, but has not provided further details here on the scale, terms or expected revenue from those sales. The next results should help clarify how the company’s build-out is progressing; they will not, by themselves, settle the longer-term question of returns.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue increased 39% year over year to $46.0 billion in the quarter ended September 30, 2026. Amazon described it as the division’s fastest growth since the end of 2021.
How much did Amazon spend on capital investments?
Amazon reported $75.9 billion in cash capital spending during the third quarter, primarily related to AWS and AI, according to CFO Brian Olsavsky. The company expects about $220 billion in capital spending for 2026.
Why was Amazon’s free cash flow negative?
For the 12 months through September, Amazon generated $168.3 billion in operating cash flow and spent $210.7 billion on capital expenditures. The difference left free cash flow at negative $42.4 billion. The spending is concentrated in long-lived infrastructure, but the timing and scale of returns remain uncertain.
What does AWS’s $578 billion order book mean?
It is the value of contracted future revenue disclosed by CEO Andy Jassy, up from $496 billion three months earlier. It signals customer commitments, but it is not cash already received and does not specify exactly when the revenue will be recognized.
Could AWS’s investment affect customers?
Potentially. Jassy said large blocks of AI capacity are reserved well in advance and short-term capacity on older AI chips is selling at a premium. Amazon has not provided a general estimate of price effects or how long capacity constraints may last.
Source: ThorstenMeyerAI.com
