Amazon’s Cash Is Fueling AWS Growth At Its Fastest Pace In Five Years

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Amazon said AWS revenue rose 39% to $46.0 billion in the third quarter, its fastest growth since the end of 2021, while the company spent $75.9 billion on capital investments in the same three-month period. Its shares fell more than 6% in after-hours trading Thursday as investors weighed the cloud unit’s acceleration against heavy spending, weaker-than-expected results in some areas and a negative free-cash-flow figure.

AWS operating income increased 55% to $17.8 billion, according to Amazon’s October 29 results. The company said contracted future AWS revenue, known as its backlog, reached $578 billion, up from $496 billion three months earlier. Chief Executive Andy Jassy said the increase reflected demand for cloud capacity, including computing used for artificial intelligence.

Chief Financial Officer Brian Olsavsky said the quarter’s capital spending primarily related to AWS and AI. Jassy said most of Amazon’s roughly $220 billion capital-spending plan for 2026 is directed toward AWS. The company had raised that annual plan from about $200 billion in July, citing higher memory prices, and expects spending in 2027 to be “meaningfully more.”

Amazon generated $168.3 billion in operating cash flow over the 12 months through September, up 29% from a year earlier, while capital spending over that period reached $210.7 billion, up 82%. The company reported trailing 12-month free cash flow of negative $42.4 billion, compared with positive $14.8 billion a year earlier. Amazon’s quarterly earnings per share of $1.89 also came in below analysts’ $1.96 estimate, while advertising revenue missed expectations and its holiday-quarter revenue forecast was slightly below forecasts cited by CNBC.

AI Capacity Comes at a Cash Cost

The results show the trade-off Amazon is making: it is investing heavily in data centers, chips and related equipment to meet demand, but those investments require cash before customers use the capacity and revenue arrives. The $578 billion AWS backlog is a measure of contracted future business, not cash already collected or profit guaranteed in the current quarter. The timing gap helps explain why fast cloud growth can coincide with negative free cash flow.

For AWS customers, the build-out may affect how much computing capacity is available and what kinds of chips they can access. Amazon says large blocks of AI capacity are being reserved in advance and that some short-term capacity using older AI chips is selling at a premium. For investors, the central issue is whether customer demand and future revenue will justify the pace and scale of investment. The after-hours share decline indicates that strong AWS growth alone did not settle that question.

The spending also has implications beyond cloud customers. Amazon’s property and equipment rose from $357.0 billion at the end of 2025 to $508.9 billion at the end of September, according to the source material. Data centers require land, equipment and power, though Amazon did not disclose how much of its capital spending went specifically to energy infrastructure. The company has announced a separate $1 billion “Built Together” commitment for communities near its U.S. data centers, including energy- and water-efficiency upgrades.

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AWS Growth and Spending Timeline

AWS revenue growth accelerated for six consecutive quarters, with reported rates of 17%, 20%, 24%, 28%, 37% and 39% from the second quarter of 2025 through the third quarter of 2026, excluding currency effects, according to the supplied account. The latest result is therefore part of a sustained rise rather than a single-quarter jump. AWS also remains a major source of Amazon’s operating income, reporting $17.8 billion in the quarter.

The investment cycle is visible in both cash flow and Amazon’s balance sheet. The supplied material says long-term debt increased from $65.6 billion to $173.1 billion over nine months. Depreciation and amortization, which records the cost of equipment and other assets over time, rose 25% to $20.9 billion in the quarter. That expense reflects assets already placed in service; the new facilities and chips Amazon is buying can add costs over future years as they are used.

Amazon is also investing in its own chips. Jassy said the company installs an AI accelerator about every 14 seconds and that revenue commitments for its Trainium AI chips and Graviton processors had risen more than 20-fold in a year. Those are company statements, not independently verified measures in the supplied material. Amazon says customers saved more than $2 billion in the quarter by using its chips. It plans to sell Trainium chips outside AWS beginning in late 2027.

Returns on the Build-Out Remain Unclear

Amazon has not provided a detailed public breakdown of the $75.9 billion quarterly capital-spending figure by data centers, chips, power or other uses. The company has said most of its 2026 investment is for AWS, but the precise share and the timing of returns from individual projects remain unclear. The backlog measures contracted future revenue; the supplied information does not specify how quickly all of it will be recognized or what margins it will generate.

The account estimates quarterly free cash flow at about negative $33.5 billion based on its own arithmetic. Amazon’s reported figure cited here is negative $42.4 billion over the trailing 12 months; the quarterly estimate should not be treated as an official company-reported measure. It is also unclear how much of the increase in long-term debt is directly tied to the data-center build-out. Amazon lists energy prices and supply volatility, including for memory chips, among risks to its outlook.

Some explanations for Amazon’s investment strategy are management’s arguments rather than independently established results. Jassy said renting capacity from specialized cloud providers can reduce operating margins by about 35 percentage points compared with owning or leasing infrastructure. The supplied material does not provide an audited comparison supporting that figure. Amazon’s claims about customer savings from its chips likewise remain company estimates.

Watch Spending and Holiday Demand

Investors will look for updates on AWS growth, capital spending and free cash flow in Amazon’s next results, as well as evidence that new infrastructure is generating revenue at a pace that can support the investment. The company’s forecast of roughly $220 billion in 2026 spending and “meaningfully more” in 2027 puts those costs at the center of the coming quarters.

The near-term test is Amazon’s holiday-quarter performance. Its revenue forecast was slightly below analyst expectations in the data cited by CNBC, while advertising revenue also missed forecasts. Results will show whether retail demand and advertising improve after the third-quarter report and how much AWS continues to contribute as capacity comes online.

Customers and investors will also be watching for information about AI capacity availability, memory supply and power requirements. Amazon has said it plans to offer Trainium chips outside AWS from late 2027, but the supplied material does not provide further details on pricing, customer commitments or rollout plans.

Key Questions

How fast did AWS grow in the third quarter?

AWS revenue increased 39% to $46.0 billion in the July-to-September quarter, its fastest growth rate since the end of 2021, according to Amazon’s results.

Why did Amazon shares fall after the report?

Shares fell more than 6% in after-hours trading. The results combined strong AWS growth with $75.9 billion in quarterly capital spending, negative trailing 12-month free cash flow, earnings per share below analysts’ estimate, an advertising miss and a holiday-quarter revenue forecast slightly below expectations cited by CNBC.

What does AWS’s $578 billion backlog mean?

Amazon said AWS had $578 billion of contracted future revenue, up from $496 billion three months earlier. It represents business expected under customer agreements over time; it is not cash already received or a guarantee of a particular amount of profit.

How much does Amazon plan to invest?

Amazon expects about $220 billion in capital spending in 2026, with most directed toward AWS, according to Jassy. The company said spending in 2027 would be “meaningfully more.”

What remains uncertain about the AI spending?

Amazon has not disclosed a detailed breakdown of the spending by data centers, chips and power, or how quickly each investment will produce returns. The pace at which AWS converts its backlog into revenue and profit is also not specified in the supplied material.

Source: ThorstenMeyerAI.com