Amazon Q3 2026 Earnings: AWS Up 39%, Free Cash Flow Negative

Amazon delivered its fastest cloud growth in nearly five years and the highest operating margin in its history in the third quarter of 2026, and investors still sold the stock. The company’s shares fell about 5.6% on Friday, October 30, after results published the previous afternoon showed a narrow miss on revenue and earnings per share, quarterly capital spending of roughly $77 billion, and trailing free cash flow that has swung to an outflow of $42.4 billion.

The reaction capped a punishing week for large-cap technology stocks. Amazon’s decline came on the same day Intel suffered one of the worst sessions in its history and a day after Alphabet posted its worst trading day on record, as investors grew less tolerant of heavy AI spending without matching near-term returns.

The headline numbers

According to Amazon’s earnings release for the quarter ended September 30, 2026:

• Net sales were $201.9 billion, up 12% year over year. Analysts had expected about $202.25 billion.
• Earnings per share were $1.89, below the consensus estimate of $1.97.
• Operating income was $28.1 billion, up from $17.4 billion in the third quarter of 2025.
• Operating margin reached 13.9%, the highest the company has reported.

The miss on the top line was small, roughly $350 million against a base of more than $200 billion. The EPS shortfall was more meaningful to traders, particularly against an elevated expectation built during October’s rally in AI-linked shares.

AWS accelerates to 39%

The cloud unit was the clear bright spot. Amazon Web Services revenue rose 39.3% to about $46 billion, ahead of the roughly $45.29 billion Wall Street had forecast. Segment operating income was $17.8 billion, up from $11.4 billion a year earlier, meaning AWS generated more than half of Amazon’s total operating profit in the quarter.

Chief executive Andy Jassy said in the release that AWS is now running at an annualized revenue rate of about $184 billion. He also gave an unusually long-range outlook, saying the company expects AWS revenue growth of more than 40% in both 2027 and 2028. On the earnings call, he repeated that AWS can grow “north of 40%” in each of those years.

AWS’s contracted backlog reached $578 billion, according to call summaries, a figure that supports management’s confidence that demand will outlast the current build-out cycle.

Custom silicon gains ground

Amazon used the call to highlight its in-house chips. According to the company, revenue commitments for its Graviton CPUs and Trainium AI accelerators rose more than 20-fold year over year. Customers running on Amazon’s custom silicon saved more than $2 billion during the quarter compared with alternatives, Amazon said.

The company also said it intends to make Trainium available outside of AWS beginning in late 2027. That would put Amazon in more direct competition with merchant chip suppliers for customers who run their own data centers, rather than limiting Trainium to rented capacity inside Amazon’s cloud.

Retail and advertising

The commerce businesses also improved profitability, according to the release:

• North America operating income was $8.7 billion, up from $4.8 billion a year earlier, on a 7.7% margin.
• International operating income was $1.6 billion, up from $1.2 billion, on a 3.7% margin.

Advertising revenue was about $19.6 billion, according to call transcripts. Management said it expects ad growth to return to the high teens in the fourth quarter after timing effects in the third.

Capex and the cash flow problem

The spending side of the report drew most of the attention. Amazon’s purchases of property and equipment were about $77.3 billion in the quarter, according to its cash flow statement; the earnings call transcript cited cash capital expenditures of about $75.9 billion on a net basis. Either figure was well above what analysts had modeled.

Amazon said it still expects cash capex of about $220 billion for full-year 2026, unchanged from prior guidance. Jassy said the company expects to “spend meaningfully more in 2027,” without giving a number. Analysts have flagged the fourth-quarter call in early 2027 as the likely venue for a specific figure.

The consequence shows up in free cash flow. According to the release:

• Trailing twelve-month operating cash flow rose 29% to $168.3 billion, from $130.7 billion a year earlier.
• Trailing twelve-month free cash flow was an outflow of $42.4 billion, compared with an inflow of $14.8 billion a year earlier.
• The swing was driven primarily by a $94.8 billion year-over-year increase in purchases of property and equipment, net of proceeds and incentives.

In other words, the underlying business is generating substantially more cash than it did a year ago, but the data center build is consuming all of it and more. Amazon has turned to debt markets to help fund the program, including a $25 billion bond sale earlier this year.

Fourth-quarter guidance

For the fourth quarter, Amazon guided to:

• Net sales of $240 billion to $247 billion.
• Operating income of $28.5 billion to $33.5 billion.

The fourth quarter includes the holiday shopping season, which typically produces Amazon’s largest revenue quarter of the year.

How the stock traded

Amazon shares had already fallen 4.25% during regular trading on October 29, closing at $243.79 ahead of the report as tech stocks weakened. They dropped another 6% to 7% in after-hours trading once results were out, according to market coverage, and closed down about 5.6% on Friday.

The broader market backdrop was poor. The Nasdaq Composite fell nearly 3% on Friday and the S&P 500 lost about 1.8%. Intel’s results triggered a sector-wide rout in semiconductors, and Alphabet’s third-quarter report had already rattled investors on Thursday.

The quarter contrasts with three months ago, when Amazon’s second-quarter results set a then-record for AWS and were received more warmly.

What it means

AWS is winning the growth argument but not the cash argument. A 39% growth rate on a business with a $184 billion run rate is an extraordinary result, and a $578 billion backlog suggests the demand is contracted rather than speculative. The market’s problem is not the cloud business; it is the order in which the cash arrives. Amazon is spending first and collecting later, and for now that leaves the company free-cash-flow negative on a trailing basis for the first time in years.

The 2027 capex question is now the stock’s main variable. “Meaningfully more” than $220 billion is open-ended. If the eventual figure lands far above $250 billion without a matching step-up in AWS guidance, the free cash flow deficit widens further. If Jassy’s 40%-plus growth targets for 2027 and 2028 hold, the spending looks justified in hindsight.

Winners: AWS customers and suppliers. The capex number flows directly to memory makers, networking vendors and power equipment suppliers, and Amazon’s Trainium push, including the plan to sell it outside AWS, is a direct competitive signal to Nvidia and AMD. The retail business also looks healthier, with North America margins at 7.7%.

Losers: Investors who owned Amazon for its cash generation. The company that once prized free cash flow per share above nearly every other metric is now consuming cash to build AI capacity, and shareholders are being asked to wait.

What to watch: the holiday quarter’s delivery against the $240 billion to $247 billion guide, any specific 2027 capex number, further debt issuance, and whether AWS’s growth holds above 40% as Jassy has promised. The reaction to Amazon, Alphabet and Intel this week suggests investors will price each of those data points with less patience than they showed earlier this year.