Amazon Falls 7% as AI Spending Turns Its Cash Flow Negative, Even With AWS Growing at Its Fastest Pace in Nearly Five Years

SEATTLE - Amazon’s cloud business just had its best growth in nearly five years, and investors focused on the bill. Amazon shares were down 7% in premarket trading on Friday, according to CNBC, after the company reported third-quarter results that missed Wall Street estimates and showed free cash flow sliding deeper into negative territory as it pours money into AI data centers.

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Net sales rose 12% to $201.9 billion, according to Amazon’s earnings release, just short of the $202.31 billion analysts expected, and earnings of $1.89 a share missed the $1.96 estimate, CNBC reported, citing LSEG. Operating income climbed to $28.1 billion from $17.4 billion a year earlier, and Amazon said its 13.9% operating margin was its highest ever. Net income slipped to $20.7 billion from $21.2 billion, which Amazon attributed mainly to a $9.5 billion pretax gain on its Anthropic investment in the year-earlier quarter.

AWS was the bright spot. Revenue rose 39% to $46 billion, ahead of the $45.29 billion StreetAccount consensus, and the unit’s operating income rose to $17.8 billion from $11.4 billion. “Our AWS investment in functionality and infrastructure is working,” chief executive Andy Jassy said in the release, adding that Amazon projects AWS growth of more than 40% in both 2027 and 2028. On the call, he said AWS could be “a trillion-dollar revenue business in the next five to 10 years,” TechCrunch reported.

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The cost of getting there now shows up in the cash line. Free cash flow for the trailing twelve months was an outflow of $42.4 billion, compared with an inflow of $14.8 billion a year earlier, driven by a $94.8 billion increase in spending on property and equipment that Amazon said primarily reflects investment in AI. Capital expenditures in the quarter reached $77.3 billion, up from $35.1 billion a year earlier and well above the $58.7 billion FactSet estimate, CNBC reported. Jassy said Amazon still expects about $220 billion in cash capital spending this year, most of it for AWS, and plans to “spend meaningfully more in 2027,” with a “clear line of sight to attractive financial returns.”

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The retail side was softer. Online store sales rose 2% to $68.47 billion, short of the $69.68 billion estimate, and advertising revenue rose 11% to $19.64 billion, below the $20.82 billion analysts expected, according to CNBC. Both were affected by Amazon’s decision to move Prime Day into the second quarter in several countries to avoid the FIFA World Cup, and Amazon said that excluding the shift, third-quarter growth would have been about 400 basis points higher. Its fourth-quarter revenue guidance of $240 billion to $247 billion had a midpoint below the $244.5 billion analysts expected.

Jassy also put a date on a long-running question about Amazon’s chips. He said the chips business “continues to grow triple-digit percentages year over year,” and that Trainium will be available to outside customers “late in 2027.”

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Amazon closed a rough week for Big Tech earnings. Alphabet fell 13% on Thursday, its worst single-day drop on record, after reporting its own negative free cash flow, while Microsoft rose after staying cash flow positive, CNBC reported. Intel was down 25% in premarket trading on Friday after weak fourth-quarter guidance. “I don’t think this is a moment of reckoning,” Matt Orton, chief market strategist at Raymond James, told CNBC, adding that he was “generally okay” with these companies turning free cash flow negative for a “temporary period.” Apple reports its quarter on Nov. 2.