Amazon shares fall 6% as AI spending drives negative free cash flow

Amazon shares dropped more than 6% in extended trading on Thursday after the company reported third-quarter results that missed Wall Street estimates and another quarter of negative free cash flow, driven by its growing spending on artificial intelligence.

The company kept its 2026 capital expenditure forecast at $220 billion, saying it still expects spending to reach that level this year. Capital expenditures hit $77.3 billion in the quarter, up from $35.1 billion a year earlier and well above analysts' estimate of $58.7 billion, according to FactSet.

The heavy AI spending has weighed on cash flow. Amazon posted negative free cash flow for a second consecutive quarter, recording an outflow of $42.4 billion for the trailing 12-month period, a 386% swing year over year. In the prior quarter the figure was negative $7.6 billion. Amazon said the shortfall was primarily due to an increase in purchases of property and equipment as a result of AI investments.

AWS accelerates, retail slows

Sales in Amazon's cloud segment rose 39% year over year to $45.98 billion, topping the consensus forecast of $45.29 billion and 38% growth, according to StreetAccount. CEO Andy Jassy said in the earnings release that the company expects AWS revenue growth rates of "over 40%" next year and in 2028, adding: "Our AWS investment in functionality and infrastructure is working." On a call with investors, he said he expects AWS to be a $1 trillion revenue business in the next five to 10 years, and that Amazon expects to "spend meaningfully more in 2027."

Jassy also said Amazon's chips business "continues to grow triple-digit percentages year over year" and that the company plans to make its Trainium chips available externally "late in 2027."

Retail and advertising were weaker. Online sales rose 2% year over year to $68.47 billion, short of the $69.68 billion analysts projected, and a slowdown from nearly 10% growth a year earlier. Advertising revenue rose 11% to $19.64 billion, missing StreetAccount estimates of $20.82 billion. Amazon said both units were affected in part by its decision to pull its annual Prime Day sale forward in several countries from the third quarter into the second quarter so it would not conflict with the FIFA World Cup in July.

Net income came in at $20.69 billion, or $1.89 per share, versus $21.19 billion, or $1.95 per share, a year ago. Amazon said the decrease was driven primarily by a $9.5 billion pre-tax gain from its investment in the AI startup Anthropic, which was recorded in the 2025 third quarter.

For the fourth quarter, Amazon guided revenue to between $240 billion and $247 billion. The midpoint of that guidance was below Wall Street's expectation of $244.5 billion, according to LSEG.

Source: CNBC.