Amazon’s Cloud Is Booming. Its Cash Is Not

Amazon reported its third quarter results on October 29, 2026, and the numbers tell two stories at once. Its cloud business, Amazon Web Services, just grew faster than it has in nearly five years. At the same time, the company is spending so much on artificial intelligence infrastructure that its free cash flow over the past twelve months is now negative $42.4 billion. Investors heard the second story louder. Shares fell more than 7 percent in after hours trading.

That split is the real news here. Demand for AI computing is not a promise anymore. It is booked, billed, and growing. But the bill for building it has arrived, and it is large enough to move even Amazon’s stock.

What Amazon reported

For the quarter ended September 30, 2026, Amazon reported net sales of $201.9 billion, up 12 percent from a year earlier. Operating income rose to $28.1 billion, from $17.4 billion, giving Amazon an operating margin of 13.9 percent, which the company called its highest ever.

Net income fell to $20.7 billion, or $1.89 per share, from $21.2 billion a year earlier. Amazon said the decline was mainly because the year earlier quarter included a $9.5 billion pre tax gain on its investment in Anthropic. Earnings per share still came in below the $1.97 analysts expected, according to GeekWire, and total revenue came in just under estimates.

North America sales rose 6 percent to $112.9 billion. International sales rose 5 percent to $43.1 billion. Both were held back by a calendar quirk: Prime Day fell in the second quarter this year for most large countries, while in 2025 it fell entirely in the third quarter. Amazon said growth would have been about 4 percentage points higher without that shift.

For the fourth quarter, Amazon guided to net sales of $240 billion to $247 billion, up 12 to 16 percent, and operating income of $28.5 billion to $33.5 billion.

Why AWS accelerated

AWS is the engine of this report. Revenue grew 39.3 percent to $46.0 billion, its fastest pace in nearly five years, putting the unit on a $184 billion annualised revenue run rate. AWS operating income rose to $17.8 billion, from $11.4 billion a year earlier, at a margin of 38.7 percent.

Chief executive Andy Jassy said on the earnings call that AWS has a contracted backlog of $578 billion, more than double a year earlier, and he projected AWS revenue growth of more than 40 percent in both 2027 and 2028. That is a forward looking claim, not a result, but the backlog gives it weight. Customers are not just trying AI services. They are signing contracts for years of computing.

The release adds detail that backs up the demand story. Amazon signed new AWS agreements in the quarter with Meta, NVIDIA, OpenAI, Salesforce, and Oracle, among others. On Bedrock, its service for running AI models, spending by Fortune 500 companies rose nearly seven times year over year, and total token volume grew nearly 17 times. Bedrock added OpenAI’s GPT-6 models and Anthropic’s Claude models in the quarter, alongside models from Moonshot AI, SpaceXAI, and others.

In other words, AWS is winning twice: as the place where companies run other labs’ models, and as the infrastructure underneath them.

Why the stock still fell

If the quarter was this strong, why did shares drop? Three reasons.

First, the earnings miss, even a small one, matters when a stock is priced for perfection. At $1.89 against $1.97 expected, and with revenue just under estimates, there was no room for disappointment.

Second, the spending. Amazon said it still expects about $220 billion of cash capital expenditure in 2026, and Jassy told the earnings call that Amazon will spend meaningfully more on capital projects in 2027. Over the trailing twelve months, free cash flow swung to an outflow of $42.4 billion, from an inflow of $14.8 billion a year earlier, driven mainly by a $94.8 billion year over year increase in purchases of property and equipment, which Amazon said primarily reflects investments in artificial intelligence.

Third, the pattern is now industry wide, which makes it harder to dismiss as one company’s problem. A day earlier, Alphabet reported negative free cash flow of $9.07 billion for its third quarter, its second straight negative quarter, after spending $51.4 billion on capital expenditure. Microsoft, by contrast, still generated $18.6 billion of free cash flow in its latest quarter even while spending heavily. The market is starting to sort the AI builders into those whose cash can carry the build and those who must borrow, raise equity, or both to fund it.

Amazon sits in the second group for now, and it is asking investors to be patient. GeekWire noted that Amazon may need to count on its famous willingness to be misunderstood for long periods of time. Jassy gave investors the long view on the call: “There has never been a trillion dollar revenue business, and we may have two of them in the next 5 to 10 years,” referring to AWS and the stores business.

What it means for builders

For founders and builders, this report is more useful than the stock reaction suggests.

One, AI demand is production demand. A $578 billion backlog and Bedrock token volume up 17 times do not describe experiments. They describe workloads that companies have committed to run. If you build tools for those workloads, the market is real.

Two, compute costs will flow through to you. When the largest cloud providers spend $220 billion in a year on infrastructure, those costs eventually show up in pricing, in capacity allocation, and in which customers get priority. Design for efficiency from the start: smaller models where they work, caching, and token discipline are not optimisations. They are margin.

Three, neutrality is a product. AWS now hosts rival labs’ models side by side, from OpenAI to Anthropic to open weight models. The cloud that wins may not be the one with the best model. It may be the one that lets customers switch models without rebuilding everything. Builders should keep that same freedom in their own stack: a replaceable model layer beats a locked in one.

Four, watch the funding question, not just the technology. The next phase of the AI race will be decided partly by balance sheets: who can fund data centres, chips, and power without breaking their cash flow. Amazon, Alphabet, Meta, and Microsoft are all answering that question differently, and their answers will shape prices and availability for everyone downstream.

What to watch

Three things will tell us whether Amazon’s bet pays off. First, whether AWS growth really clears 40 percent in 2027, as Jassy projected, or whether that backlog converts more slowly than promised. Second, what “meaningfully more” than $220 billion means in practice when Amazon gives its 2027 spending plan. Third, whether free cash flow stabilises, or whether the outflow keeps widening as the build continues.

Amazon’s quarter proves the AI boom is generating real revenue. It also proves the boom is not free. Both facts are true at the same time, and the tension between them is now the central story of the cloud industry.

Sources

Amazon Q3 2026 earnings release, via Business Wire, October 29, 2026. GeekWire, “AWS growth hits 39%, its fastest in nearly five years, as Amazon misses on earnings,” October 29, 2026. Alphabet Q3 2026 results as reported by Reuters and CNBC, October 28, 2026.

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