Finally, Amazon has also "burned through" its free cash flow
Amazon CEO Andy Jassy. Image processed by AI
Written by｜Su Yang
Editor｜Xu Qingyang
On October 29, local time in the United States, Amazon announced its financial report for the third quarter of 2026.
The financial report shows that Amazon's revenue for the quarter was $20.1944 billion, a year-on-year increase of 12%; operating profit was $2.8076 billion, a year-on-year increase of 61%; net profit was $2.0685 billion, a year-on-year decrease of 2%; diluted earnings per share were $1.89, lower than $1.95 in the same period last year. Both revenue and earnings per share did not meet market expectations.
The decline in net profit was mainly affected by the high base formed by the investment income from Anthropic in the same period last year. In the third quarter of 2025, Amazon recorded $9.5 billion in related pre-tax income, raising the comparative base.
Amazon's operating profit margin for the third quarter reached 13.9%, a record high. However, the free cash flow over the past 12 months was negative $42.357 billion, compared to positive $14.788 billion a year ago. This means that the investment in AI infrastructure is driving up cloud business revenue while rapidly increasing capital demands.
Amazon expects fourth-quarter revenue to be between $240 billion and $247 billion, below analysts' average expectations. Meanwhile, Amazon maintains its capital expenditure plan of about $220 billion for 2026.
After the financial report was released, the stock price fell by more than 7% in after-hours trading. Behind the stock price reaction, investors are concerned not just about one quarter's performance but about Amazon's operational rhythm in the coming quarters.
This also makes Amazon's core issues this quarter more specific: Can AWS continue to absorb the new computing power? Can AI revenue cover infrastructure investments? And can the retail business provide sufficient cash flow during the year-end shopping season?
01 AWS Backlog Reaches $578 Billion
AWS remains Amazon's most important growth engine this quarter.
Third-quarter revenue was $45.984 billion, a year-on-year increase of 39.3%, up from 36.7% in the second quarter, marking the fastest growth rate in nearly five years. Based on this scale, AWS's annualized revenue run rate is approximately $184 billion.
AWS's operating profit reached $17.773 billion, a year-on-year increase of about 55%; the operating profit margin was 38.7%, down from 39.4% in the second quarter but higher than 34.6% in the same period last year. Both revenue and profit achieved rapid growth, while the profit margin saw a slight sequential decline.
The growth of backlog orders is an important basis for AWS's next phase of revenue.
Amazon CEO Andy Jassy disclosed during the earnings call that AWS's backlog reached $578 billion, continuing to grow from $496 billion at the end of the second quarter. The backlog reflects the amount of contracts signed but not yet recognized as revenue, and actual revenue still depends on resource delivery and customer usage.
Jassy stated that the company currently installs an AI accelerator every 14 seconds on average, and customer demand for new computing power remains strong. He expects AWS's revenue growth rates in 2027 and 2028 to exceed 40%.
The growth of the retail business is relatively moderate. In the third quarter, Amazon's North America business revenue was $112.852 billion, a year-on-year increase of 6%; international business revenue was $43.108 billion, a year-on-year increase of 5%, with an 8% increase after excluding exchange rate effects.
The adjustment of Prime Day timing affected the year-on-year performance of the quarter. In 2026, the Prime Day events in most major markets were moved to the second quarter, while last year they were all counted in the third quarter. Amazon stated that if this timing difference is excluded, its third-quarter revenue growth rate would be about 4 percentage points higher.
The advertising business grew by 12% in the third quarter after excluding exchange rate effects, and Amazon expects the growth rate in the fourth quarter to return to the high teens. Amazon did not disclose the specific revenue amount for the advertising business in this financial report.
02 Model and Agent Business Continues to Expand
Amazon is expanding its AI business from underlying computing power to model services and agent development.
In the third quarter, spending by Fortune 500 companies on Amazon Bedrock increased nearly sevenfold year-on-year, and the total number of platform token calls grew nearly 17 times.
Bedrock is the model service platform provided by AWS for enterprises, allowing customers to call models from different vendors and deploy AI applications on AWS infrastructure.
During the quarter, Bedrock added models from companies such as OpenAI, Anthropic, Dark Side of the Moon, xAI, and Zhiyu, further expanding the choices available to enterprise customers. Amazon also added a built-in web search function for OpenAI models, enabling businesses to retrieve real-time information when calling the models.
In terms of agents, Amazon launched the public preview of Bedrock Managed Agents to help enterprises build and deploy AI agents in production environments. Developers can also use Strands Harness to build agents. Amazon claims that with the same cutting-edge models, this tool can improve token usage efficiency, reducing task costs by 32% while maintaining comparable or higher accuracy.
These products cover model calling, agent development, and deployment stages. However, Amazon has not separately disclosed the revenue from Bedrock and agent business, and the growth in platform usage cannot be directly equated with revenue growth.
03 Demand for Trainium and Graviton Grows 20 Times
Self-developed chips are an important part of Amazon's strategy to reduce computing costs and differentiate AWS products.
Jassy stated during the earnings call that revenue commitments for Trainium and Graviton have increased more than 20 times year-on-year, with the chip business overall maintaining triple-digit growth. Trainium is primarily used for AI model training and inference, while Graviton is aimed at general cloud computing.
In the third quarter, Amazon also disclosed new AWS agreements signed with companies such as Meta, NVIDIA, OpenAI, Salesforce, Oracle, Qualcomm, Verizon, and Stripe. However, the company did not disclose the specific chip models, computing power scales, and procurement amounts corresponding to these agreements.
However, the procurement or computing power agreements signed by customers need to be gradually converted into revenue as chips are delivered and actually used.
Amazon previously disclosed that the annualized revenue run rate for its self-developed chip business has exceeded $25 billion.
Amazon revealed that it is expanding the deployment of the next-generation chips and plans to broaden the use of Trainium outside of AWS in the second half of 2027.
Previously, Anthropic had utilized Trainium 2 to build the Project Rainier computing cluster, deploying over 500,000 chips.
Expanding external usage will provide new sales channels for Trainium but also requires Amazon to further improve its software ecosystem, supply chain, and customer support.
Graviton primarily serves EC2 cloud computing instances. Amazon hopes to improve server performance and energy efficiency through self-developed CPUs while reducing reliance on external processor suppliers.
04 Annual Capital Expenditure Maintains at $220 Billion
Investment in AI infrastructure continues to drive up Amazon's cash expenditures.
In the third quarter, Amazon's cash expenditure for acquiring related properties and equipment reached $77.259 billion, compared to $35.095 billion in the same period last year; after deducting asset sale income and related incentives, the net expenditure was $75.878 billion. The cumulative cash expenditure for acquiring properties and equipment in the first three quarters reached $175.670 billion.
Amazon maintains its expectation of approximately $220 billion in cash capital expenditures for the year and did not further raise this in the financial report. The company had previously raised its annual investment plan to this level, mainly for data centers, servers, network equipment, and AI infrastructure construction.
The growth in capital expenditures is also beginning to affect cash flow. For the 12 months ending September 30, Amazon's operating cash flow reached $168.3 billion, a year-on-year increase of 29%. Free cash flow was negative $42.4 billion, while it was positive $14.8 billion in the same period last year.
Over the past 12 months, the company's operating cash flow increased by $37.6 billion, but net capital expenditures increased by $94.8 billion, exceeding the increase in operating cash flow. This is also the main reason for the negative free cash flow.
05 Market Begins to Focus on Investment Returns
Amazon expects fourth-quarter revenue to be between $240 billion and $247 billion, a year-on-year increase of 12% to 16%; operating profit is expected to be between $28.5 billion and $33.5 billion, higher than $25 billion in the same period last year.
The market had previously expected Amazon's fourth-quarter revenue to be about $244.5 billion, with the company's guidance median at $243.5 billion, slightly lower than analysts' expectations. After the financial report was released, Reuters and The Wall Street Journal both linked the stock price decline to revenue outlook, capital expenditures, and free cash flow pressures.
The fourth quarter is Amazon's most important retail sales season of the year. The company expects advertising business growth to return to double digits and plans to hire about 300,000 seasonal employees in the U.S. to meet the order demand during the holiday shopping season.
Before the release of this financial report, the market expected Amazon's third-quarter revenue to be about $202.2 billion, with adjusted earnings per share of about $1.97, and AWS growth rate of about 37% to 38%. The actual AWS performance exceeded expectations, but revenue, earnings per share, and fourth-quarter revenue guidance did not meet market requirements.
Investors are focused on two aspects: whether AWS can maintain its current growth rate and when the massive capital expenditures can be converted into revenue and cash flow.
The acceleration of AWS growth indicates that demand for enterprise cloud computing and AI computing power is still expanding. However, Amazon's infrastructure investments are also rapidly increasing, and free cash flow has turned negative over the past 12 months. The fourth-quarter revenue guidance being below market expectations means that investors need to see more evidence to confirm that the new computing power can continue to translate into business revenue and profits.