Amazon shares dropped more than 6% in extended trading Thursday after the company reported third-quarter results that fell short of expectations, with capital expenditure on artificial intelligence infrastructure creating a significant cash outflow.
The company recorded negative free cash flow of $42.4 billion for the trailing twelve-month period, representing a swing of 386% year over year, primarily driven by increased spending on property and equipment for AI investments. Capital expenditures reached $77.3 billion during the quarter, nearly double the $35.1 billion spent a year earlier and well above analysts' estimate of $58.7 billion according to FactSet. This marked the second consecutive quarter of negative free cash flow. Amazon maintained its full-year 2026 capital expenditure forecast at $220 billion. CEO Andy Jassy told investors the company expects to "spend meaningfully more in 2027" and said Amazon has a "clear line of sight to attractive financial returns" from the investments.
Despite the cash flow pressures, Amazon's cloud division showed strong momentum. Amazon Web Services revenue climbed 39% year over year to $45.98 billion, surpassing the consensus forecast of $45.29 billion and expected growth of 38% according to StreetAccount. Jassy projected AWS revenue growth rates of "over 40%" for next year and in 2028, and said he expects AWS will become a $1 trillion revenue business within the next five to 10 years. The company also highlighted growing traction for its AI offerings, including Bedrock, its AI model marketplace, and its Trainium and Graviton AI chips, which Jassy said continue to grow at triple-digit percentage rates year over year. Amazon plans to make its Trainium chips available to external customers "late in 2027."
Other results came in mixed. Third-quarter net income was $20.69 billion, or $1.89 per share, down from $21.19 billion, or $1.95 per share, a year earlier, with the decrease driven primarily by a $9.5 billion pre-tax gain on Amazon's investment in AI startup Anthropic recorded in the prior-year quarter. Online sales gained 2% year over year to $68.47 billion, falling short of the $69.68 billion analysts projected according to StreetAccount, marking a slowdown from nearly 10% growth a year ago. For the fourth quarter, Amazon forecast revenue between $240 billion and $247 billion, with the midpoint below Wall Street's expectations of $244.5 billion according to LSEG.
For American consumers and businesses, Amazon's massive spending on AI infrastructure and cloud capabilities will determine whether the company can convert its technology investments into profitable growth while maintaining competitive pricing and services.