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TL;DR
AWS revenue grew 39% to $46 billion in the third quarter, while Amazon reported a $578 billion AWS order book and continued a major data-center and AI build-out. The spending weighed on cash flow: trailing 12-month free cash flow was minus $42.4 billion, and Amazon shares fell more than 6% in after-hours trading as investors also weighed earnings and holiday-quarter guidance.
Amazon reported 39% third-quarter growth at AWS, lifting cloud revenue to $46.0 billion, even as the company spent $75.9 billion on capital projects in the quarter. Its trailing 12-month free cash flow fell to minus $42.4 billion, and Amazon shares dropped more than 6% in after-hours trading on Thursday, October 29, as investors assessed the cost of its data-center and AI expansion alongside results and guidance that fell short of some expectations.
AWS operating income rose 55% to $17.8 billion, according to Amazon’s October 29 results. CEO Andy Jassy said the cloud unit’s contracted future revenue, known as its order book, grew to $578 billion from $496 billion three months earlier. That figure represents contracted work expected to generate revenue over time; it is not cash already received. AWS revenue has accelerated for six consecutive quarters, from 17% growth in the second quarter of 2025 to 39% in the latest quarter, excluding currency effects, according to the supplied figures.
Amazon’s cash capital spending reached $75.9 billion in the quarter, with Chief Financial Officer Brian Olsavsky saying it primarily related to AWS and AI. Jassy said most of the roughly $220 billion Amazon expects to spend in 2026 will go to AWS, and that the company expects to spend “meaningfully more” in 2027. Amazon’s property and equipment rose from $357.0 billion at the end of 2025 to $508.9 billion at the end of September, an increase of about $152 billion over nine months.
The earnings report also included weaker points. Amazon’s $1.89 earnings per share missed the $1.96 analysts expected, while advertising revenue and the forecast for the holiday quarter came in below expectations, according to the source’s account of CNBC, LSEG and StreetAccount data. The reported share-price decline followed the results, but the precise contribution of each result, forecast and spending figure to the market reaction is not established.
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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The Cost of Building AWS Capacity
The results put Amazon’s AI infrastructure strategy in clear financial terms: AWS demand is rising quickly, but meeting it requires large upfront investment in buildings, servers, chips and related equipment. Customers typically pay as capacity is used, while construction and equipment bills arrive earlier. The $578 billion order book gives investors evidence of contracted demand, but it does not remove the timing gap between spending and revenue, nor does it guarantee that every commitment will produce the expected profit.
For cloud customers, available capacity may matter as much as headline growth. Jassy said large blocks of AI capacity are reserved well in advance, while short-term capacity on older AI chips can command a premium. If supply remains tight, businesses may face longer waits or higher costs for some workloads. Amazon has not disclosed a broad price impact across AWS, so the customer effect will vary by service and contract.
The investment also carries consequences beyond the cloud division. Amazon is funding a build-out at a scale that can affect cash available for other priorities and increase reliance on financing. The source reports long-term debt rising from $65.6 billion to $173.1 billion over nine months; that is a balance-sheet change, not by itself proof that the spending is unsustainable. The central question for investors is whether future AWS revenue and operating income will justify the current outlay.
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How Spending Outran Cash Generation
Amazon’s trailing 12-month free cash flow changed from positive $14.8 billion a year earlier to minus $42.4 billion. Over the latest 12 months, the company generated $168.3 billion in operating cash flow, up 29%, while capital spending reached $210.7 billion, up 82%. Free cash flow measures cash left after operating needs and investment; it can fall sharply when a company makes major infrastructure purchases even while its underlying business generates more cash.
Amazon raised its 2026 capital-spending expectation from about $200 billion in February to roughly $220 billion in July, citing higher memory prices, according to the source material. Jassy has described the investment as directed chiefly toward AWS. The company is building data-center capacity and developing its own Trainium AI accelerators and Graviton processors. Jassy said Amazon installs an AI accelerator about every 14 seconds and that revenue commitments for its own chips increased more than 20-fold in a year. These are company statements; Amazon’s claim that customers saved more than $2 billion in the quarter using its chips has not been independently verified in the supplied material.
Some costs continue to appear after equipment is purchased. Depreciation and amortization rose 25% to $20.9 billion in the quarter, reflecting costs assigned over the useful lives of assets. Amazon also cited memory costs and supply volatility as risks. The company announced a separate $1 billion “Built Together” commitment for communities near its U.S. data centers, including energy and water-efficiency upgrades; the source does not specify how much of its capital spending is for power infrastructure.
Returns and Capacity Still Unclear
Amazon has not provided a specific date when its AI investment is expected to translate into positive free cash flow, nor a detailed breakdown of the $75.9 billion quarterly spend by data centers, chips, power and other equipment. The company’s roughly $220 billion 2026 plan and expectation of “meaningfully more” in 2027 signal that spending pressure may continue, but they do not establish the eventual return on that investment.
The order book is a measure of contracted future revenue, not a guarantee of when customers will use capacity, how much of the total will be recognized as sales, or the margins Amazon will earn. It is also unclear how quickly AWS can bring new capacity online, how much shortages of memory, electricity or other components may delay projects, and whether demand will remain strong at current levels. Amazon’s statements about chip savings, demand and the economics of owning versus renting capacity are company claims, not independently verified outcomes in the supplied reporting.
Several details behind the market response remain unsettled as well. The available material reports an after-hours share decline of more than 6% and identifies missed earnings and advertising expectations, plus a slightly weaker holiday-quarter revenue forecast, but it does not quantify how much each factor contributed. A quarter-only free-cash-flow estimate of about minus $33.5 billion is the source author’s arithmetic, rather than a figure presented as an Amazon-reported measure; the trailing 12-month figure is the stated company result.
Watch Spending and AWS Delivery
Investors and cloud customers will look for Amazon’s next quarterly update for evidence that AWS can convert its contracted demand into delivered capacity, revenue and operating income. Key measures include AWS growth, operating margin, the order-book total, capital spending and free cash flow. Amazon’s 2026 spending expectation and its broad indication of higher spending in 2027 leave those figures central to assessing the build-out.
Customers will also be watching how quickly new AI capacity becomes available and whether chip supply, memory prices and energy constraints affect delivery or pricing. Amazon has said it plans to sell Trainium chips outside AWS from late 2027, but the supplied material gives no further timetable or details about how that offering would work. Until the company provides more information, the scale and commercial effect of that plan remain open.
Key Questions
How fast did AWS grow in the third quarter?
AWS revenue rose 39% to $46.0 billion in the quarter. Amazon said this was its fastest growth pace since the end of 2021; the supplied figures also show six consecutive quarters of accelerating growth, excluding currency effects.
The source reports a decline of more than 6% in after-hours trading. Investors were weighing $75.9 billion in quarterly capital spending and negative trailing free cash flow, alongside earnings per share, advertising results and holiday-quarter revenue guidance that fell short of expectations. The exact contribution of each factor is not known.
What does AWS’s $578 billion order book mean?
It is the value of contracted future revenue that Jassy reported on the earnings call, up from $496 billion three months earlier. It is not cash already collected and does not specify when revenue will be recognized or what profit AWS will earn.
How much does Amazon expect to spend on capital projects?
Amazon expects about $220 billion in capital spending in 2026, with Jassy saying most will go to AWS. He said spending in 2027 would be “meaningfully more,” without giving a specific total in the supplied material.
What could the investment mean for AWS customers?
More data-center and chip capacity could support growing demand for cloud and AI services. Jassy said large blocks of AI capacity are often reserved well in advance and short-term access to older AI chips may carry a premium. The extent of any customer-facing delay or price change has not been specified.
Source: ThorstenMeyerAI.com
