Amazon Falls After Hours as $77B Quarterly Capex Sends Free Cash Flow to -$42B Despite AWS Surge

Amazon (AMZN) reported third-quarter net sales of $201.9 billion, up 12%, with Amazon Web Services growing 39% to $46.0 billion, but shares fell more than 6% in after-hours trading from a close of $243.79. Spending on property and equipment reached $77.3 billion in the quarter, more than double last year's $35.1 billion, which pushed trailing-twelve-month free cash flow to an outflow of $42.4 billion. Diluted earnings per share of $1.89 and revenue came in just under the roughly $1.97 and $202.2 billion analysts expected, even though operating income of $28.1 billion beat the top of Amazon's own guidance range.

The quarter in numbers

Source: Amazon third-quarter 2026 results. Operating margin was 13.9%, up from 9.7%, and AWS margin was 38.7%, up from 34.6%.

AWS accelerates

AWS sales rose 39%, up from 37% in the second quarter, and its operating income rose to $17.8 billion. Amazon said it signed new AWS agreements with customers including OpenAI, Meta and Nvidia. CEO Andy Jassy said AWS investments in functionality and infrastructure are paying off, and he projected AWS growth above 40% in both 2027 and 2028. For the broader spending picture, see our coverage of Alphabet's cloud results and Microsoft's capex outlook.

Retail: slower growth, better margins

North America sales rose 6% and International rose 5%, or 8% excluding currency. Amazon said Prime Day moving into the second quarter for most large countries reduced total growth by about four percentage points. Advertising services grew 11% to $19.6 billion and subscription services grew 11% to $14.0 billion. North America operating income rose to $8.7 billion from $4.8 billion, and International to $1.6 billion from $1.2 billion. Jassy said retail is gaining share with improving margins.

The spending and the cash

Purchases of property and equipment were $77.3 billion in the quarter, or $75.9 billion after proceeds and incentives. Operating cash flow was $42.4 billion, so free cash flow for the quarter was an outflow of about $33.5 billion by our calculation. Over the trailing twelve months, operating cash flow rose 29% to $168.3 billion, but net property and equipment purchases rose $94.8 billion to $210.7 billion. Amazon expects cash capital expenditures of approximately $220 billion in 2026, and it lists supply volatility for memory chips among its risk factors.

Fourth-quarter outlook

Amazon expects roughly a 60 basis point currency headwind and high-teens growth in advertising in the fourth quarter.

What it means

The quarter shows both sides of the AI build-out. Demand is lifting AWS growth and margins, and operating income beat guidance, yet the cash needed to add capacity has turned free cash flow sharply negative and left EPS short of estimates. Net income also fell partly because last year's third quarter included $9.5 billion of pre-tax gains from Anthropic investments, so the earnings comparison is distorted. Investors are weighing whether AWS growth above 40% can justify roughly $220 billion of spending, a question that applied to Alphabet and Microsoft this week as well.

Sources: Amazon.com third-quarter 2026 results release (Oct. 29). Analyst estimates and share prices are from market data. This is informational, not a recommendation to buy or sell.