Amazon Misses Estimates as AI Spending Pushes Cash Flow $42 Billion Into the Red
On Thursday, Amazon reported third-quarter revenue of $201.9 billion and earnings of $1.89 a share, both short of Wall Street forecasts, as its artificial intelligence buildout drained cash.
Shares fell more than 7% in extended trading, CNBC reported. Analysts polled by LSEG had expected earnings of $1.96 a share on revenue of $202.31 billion.
Free cash flow came to an outflow of $42.4 billion over the past 12 months, compared with an inflow of $14.8 billion a year earlier, Amazon said in its earnings release.
The company attributed the swing mainly to a $94.8 billion increase in purchases of property and equipment, largely to build out AI capacity.
Amazon held its forecast for 2026 cash capital spending at about $220 billion.
The cloud unit again carried the quarter. Amazon Web Services sales rose 39% to $46 billion, the fastest growth in nearly five years, and AWS operating income climbed to $17.8 billion from $11.4 billion. The unit is now running at an annualized revenue pace of $184 billion.
“Our AWS investment in functionality and infrastructure is working,” Chief Executive Andy Jassy said, adding that the company projects AWS revenue growth of more than 40% in both 2027 and 2028.
“There has never been a trillion-dollar revenue business, and we may have two of them in the next 5-10 years,” Jassy said.
Retail and Advertising Fall Short
Online store sales rose 2% to $68.47 billion, below the $69.68 billion analysts expected, CNBC reported, citing StreetAccount estimates. Advertising revenue of $19.64 billion trailed a $20.82 billion consensus.
Even so, advertising sales grew about 11% from $17.70 billion a year earlier, according to figures in the company’s release.
Amazon said the comparisons were distorted by moving its Prime Day sale into the second quarter this year. Excluding that shift, it said, third-quarter sales growth would have been about 4 percentage points higher.
Operating income still rose to a record $28.1 billion, for a 13.9% operating margin, Amazon’s highest ever. Net income slipped to $20.7 billion from $21.2 billion.
The company said the decline in net income reflected a $9.5 billion gain on its Anthropic investment that boosted results a year earlier.
For the holiday quarter, Amazon expects sales of $240 billion to $247 billion and operating income of $28.5 billion to $33.5 billion, compared with $25 billion a year earlier.
The midpoint of that sales range sits just below the $244.5 billion LSEG consensus. Later in the evening, Yahoo Finance put the after-hours decline at more than 9%.
Rivals are setting their own budgets. Microsoft trimmed its capital spending forecast to $170 billion from $175 billion, while Alphabet held its range at $195 billion to $205 billion, CNBC noted.
Amazon also said it plans to hire more than 300,000 workers for the holiday season and is spending more than $1.5 billion to raise its minimum starting pay to $20 an hour.
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