Amazon Shares Fall 7.5% as Q3 Earnings Miss Forecasts and AI Spending Weighs on Cash Flow

Amazon (NASDAQ:AMZN) shares declined 7.5% in premarket trading after the technology and e-commerce group reported third-quarter earnings and revenue below Wall Street expectations, while its holiday-quarter sales outlook failed to provide sufficient reassurance to investors.

The results highlighted growing concerns about the financial impact of Amazon’s substantial investments in artificial intelligence infrastructure, despite strong revenue growth at its Amazon Web Services (AWS) cloud computing division.

Amazon reported third-quarter 2026 adjusted earnings of $1.89 per share on revenue of $201.94 billion. Analysts had expected earnings of $1.96 per share and revenue of $202.10 billion.

The earnings disappointment came as investors continued to scrutinise the costs associated with expanding data centres, computing capacity and other infrastructure required to support AI services.

Amazon Reports Negative Free Cash Flow of $42.4 Billion

One of the principal concerns surrounding Amazon’s results was the deterioration in free cash flow as the company continued its extensive infrastructure investment programme.

Amazon reported negative free cash flow of $42.4 billion for the trailing twelve months, primarily reflecting a $94.8 billion year-over-year increase in purchases of property and equipment.

The additional spending was largely associated with investments in artificial intelligence infrastructure, including the computing resources and data centres required to support increasingly demanding AI applications.

Amazon has become one of the world’s largest investors in AI infrastructure through AWS, competing with other major technology companies including Meta Platforms (NASDAQ:META), Microsoft (NASDAQ:MSFT), Alphabet (NASDAQ:GOOG) and Oracle (NYSE:ORCL).

These companies, often described as hyperscalers, are committing substantial financial resources to expanding computing capacity.

The scale of these investments has raised questions about how quickly additional infrastructure spending will generate sufficient revenue and cash flow to justify the costs.

Concerns have also increased about the amount of debt being issued across the technology sector to finance AI development, contributing to pressure on government bond markets in the United States and internationally.

AWS Revenue Jumps 39.3% as Cloud Growth Accelerates

Despite the weaker overall earnings performance, Amazon’s cloud computing division delivered substantial growth during the third quarter.

AWS generated revenue of $45.98 billion, an increase of 39.3% compared with the same period in 2025.

The result represented the division’s fastest annual revenue growth in almost five years, reflecting strong demand for cloud infrastructure and AI-related computing services.

Amazon Chief Executive Andy Jassy highlighted the performance as evidence that the company’s investment strategy was producing results.

“Our AWS investment in functionality and infrastructure is working, with over 39% year-over-year revenue growth in Q3 ($184 billion revenue run rate) and projected revenue growth rates of over 40% both in 2027 and in 2028,” Jassy said.

The comments indicated management’s confidence that AWS can maintain strong growth as businesses continue expanding their use of cloud computing and artificial intelligence.

The division’s performance provides an important source of revenue growth for Amazon, although the costs of supporting that expansion remain a central concern for investors.

Anthropic Investment Strengthens Amazon’s AI Position

Amazon has also expanded its involvement in artificial intelligence through multibillion-dollar investments in Anthropic, the developer of the Claude AI models.

The investment relationship has strengthened Amazon’s position in the rapidly developing AI industry, complementing the infrastructure and computing services provided through AWS.

Anthropic filed for an initial public offering earlier in the week, with the company targeting a stock market debut that could become the largest in history.

The potential listing has increased attention on Amazon’s financial exposure to Anthropic and the broader value of its AI investments.

Amazon’s third-quarter earnings comparison was also affected by gains associated with its investment in the AI developer.

The company recorded $9.5 billion in pretax gains from Anthropic-related investments during the third quarter of 2025, which were included in non-operating income.

Those gains affected the year-over-year comparison of Amazon’s reported profitability.

Meanwhile, third-quarter 2026 revenue was reduced by an unfavourable $900 million impact from changes in foreign exchange rates compared with the previous year.

Holiday-Quarter Revenue Forecast Disappoints Investors

Amazon forecast fourth-quarter revenue of between $240 billion and $247 billion, compared with analysts’ consensus estimate of $244.30 billion.

Although the midpoint of the company’s projected range is close to market expectations, the lower end falls considerably below the consensus forecast.

The guidance therefore failed to ease concerns about the company’s near-term growth prospects during the important holiday shopping period.

The fourth quarter is traditionally a significant period for Amazon’s retail operations, making the company’s revenue outlook an important indicator of consumer demand and business performance.

Investors will also be monitoring the contribution from AWS and advertising as Amazon seeks to balance growth opportunities with its substantial investment commitments.

Truist Analysts Remain Positive on Long-Term Growth

Despite the negative market reaction, analysts at Truist maintained a constructive view of Amazon’s long-term investment strategy.

“We believe mgmt continues to earn the right to invest despite the negative NT FCF impact as these investments are becoming increasingly de-risked,” the analysts said.

They also described Amazon shares as “one of the best plays on the secular growth of AI/Cloud, eCom, and Ads, all at a compelling valuation.”

Their assessment suggests that the long-term opportunities associated with artificial intelligence, cloud computing, e-commerce and advertising could outweigh the near-term pressure on cash generation.

However, the market’s reaction indicates that investors remain concerned about the scale and timing of the financial returns from these investments.

Amazon Maintains $220 Billion Capital Spending Plan

Amazon reaffirmed its full-year 2026 capital expenditure forecast of approximately $220 billion, maintaining one of the largest investment programmes in the technology industry.

The spending reflects the company’s efforts to expand AI computing capacity, strengthen AWS infrastructure and support its broader technology operations.

While AWS revenue growth demonstrates strong demand for these services, the substantial capital requirements continue to weigh on free cash flow.

Investors will be looking for evidence that the expansion of cloud and AI operations can generate stronger cash returns over time.

The combination of weaker-than-expected third-quarter earnings, a cautious holiday-quarter revenue outlook and negative free cash flow contributed to the 7.5% decline in Amazon shares before the market opened.

Although the company continues to report rapid growth in AWS, its near-term share price performance may depend on whether it can demonstrate that its significant AI investments will translate into sustainable profitability and improved cash generation.

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