Finally, Amazon has also "burned through" its free cash flow
- Core View: Amazon's Q3 2026 revenue and earnings per share both missed expectations. AWS grew 39.3%, its fastest pace in nearly five years, but massive investment in AI infrastructure turned free cash flow negative, shifting the market's focus to the pace of return on investment.
- Key Elements:
- Q3 revenue was $201.944 billion, up 12% year over year; operating income was $28.076 billion, up 61%; and the operating margin hit a record high of 13.9%.
- AWS revenue was $45.984 billion, up 39.3% year over year; operating income was $17.773 billion, up about 55%; and its backlog reached $578 billion.
- Free cash flow over the past 12 months was negative $42.357 billion, and net capital expenditure increased by $94.8 billion, exceeding the increase in operating cash flow.
- Full-year capital expenditure is maintained at about $220 billion. Q3 cash spending on purchases of property and equipment was $77.259 billion, far exceeding $35.095 billion in the same period last year.
- Spending by Fortune 500 companies on Bedrock grew nearly 7x year over year, and token usage on the platform grew nearly 17x.
- Revenue commitments for Trainium and Graviton grew more than 20x year over year, and the annualized revenue run rate of its custom chips exceeded $25 billion.
- Q4 revenue guidance is $240 billion to $247 billion, below the analysts' average estimate. After the earnings release, the stock fell as much as 7% in after-hours trading.
Original author: Su Yang
Original editor: Xu Qingyang
Original source: Tencent Technology
On October 29, U.S. local time, Amazon released its financial results for the third quarter of 2026.
The results showed that Amazon's revenue for the quarter was $201.944 billion, up 12% year-over-year; operating income was $28.076 billion, up 61% year-over-year; net income was $20.685 billion, down 2% year-over-year; and diluted earnings per share were $1.89, below $1.95 in the same period last year. Both revenue and earnings per share fell short of market expectations.
The decline in net income was mainly due to the high base effect created by investment gains from Anthropic in the same period last year. In the third quarter of 2025, Amazon recorded $9.5 billion in related pre-tax gains, which raised the comparison base.
Amazon's third-quarter operating margin reached 13.9%, a record high. However, free cash flow over the past 12 months was negative $42.357 billion, compared with positive $14.788 billion a year earlier. In other words, AI infrastructure investment is driving up cloud revenue while also rapidly increasing funding needs.
Amazon expects fourth-quarter revenue of $240 billion to $247 billion, below the average analyst estimate. At the same time, Amazon is maintaining its capital expenditure plan of approximately $220 billion for 2026.
After the results were released, the stock fell by more than 7% in after-hours trading at one point. Behind the stock reaction, investors are focused not just on a single quarter's performance, but on Amazon's operating rhythm over the next several quarters.
This also makes the core questions for Amazon this quarter more specific: whether AWS can continue to absorb newly added computing capacity, whether AI revenue can cover infrastructure investment, and whether the retail business can provide sufficient cash flow during the year-end shopping season.
AWS backlog reaches $578 billion
AWS remains Amazon's most important growth engine this quarter.
Third-quarter revenue was $45.984 billion, up 39.3% year-over-year, higher than 36.7% in the second quarter and the fastest growth rate in nearly five years. At this scale, AWS's annualized revenue run rate is approximately $184 billion.
AWS operating income reached $17.773 billion, up about 55% year-over-year; operating margin was 38.7%, lower than 39.4% in the second quarter but higher than 34.6% in the same period last year. Both revenue and profit achieved relatively rapid growth, while the margin declined slightly on a sequential basis.
Backlog growth is an important basis for AWS's revenue in the next stage.
Amazon CEO Andy Jassy disclosed on the earnings call that the AWS backlog reached $578 billion, continuing to grow from $496 billion at the end of the second quarter. Backlog reflects the value of contracted but not yet recognized revenue; actual revenue still depends on resource delivery and customer usage.
Jassy said the company currently installs one AI accelerator every 14 seconds on average, and customer demand for additional computing capacity remains strong. He expects AWS revenue growth to exceed 40% in both 2027 and 2028.
Growth in the retail business was relatively modest. In the third quarter, Amazon's North America segment revenue was $112.852 billion, up 6% year-over-year; international segment revenue was $43.108 billion, up 5% year-over-year, or 8% excluding the impact of foreign exchange rates.
The timing shift of Prime Day affected the quarter's year-over-year performance. In 2026, Prime Day in most major markets was moved forward to the second quarter, whereas last year it was entirely recorded in the third quarter. Amazon said that excluding this timing difference, its third-quarter revenue growth would have been about 4 percentage points higher.
The advertising business grew 12% in the third quarter excluding the impact of foreign exchange rates, and Amazon expects growth to recover to the high-teens percentage range in the fourth quarter. Amazon did not separately disclose the specific revenue amount of its advertising business in this earnings report.
Model and agent businesses continue to expand
Amazon is expanding its AI business from underlying computing power to model services and agent development.
In the third quarter, Fortune 500 companies' spending on Amazon Bedrock increased nearly 7x year-over-year, and total token calls on the platform grew nearly 17x.
Bedrock is the model service platform AWS provides to enterprises, allowing customers to call models from different vendors and deploy AI applications on AWS infrastructure.
During the quarter, Bedrock added models from companies including OpenAI, Anthropic, Moonshot AI, xAI, and Zhipu, further expanding enterprise customers' options. Amazon also added built-in web search functionality to OpenAI models, enabling enterprises to retrieve real-time information when calling models.
On the agent side, 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 said that when using the same frontier models, this tool can improve token usage efficiency and reduce task costs by 32% while maintaining comparable or higher accuracy.
These products cover model invocation, agent development, and deployment. However, Amazon has not separately disclosed revenue from Bedrock and the agent business, and growth in platform usage cannot be directly equated with revenue growth.
Demand for Trainium and Graviton grows 20x
In-house chips are an important part of Amazon's efforts to lower computing costs and expand AWS product differentiation.
Jassy said on the earnings call that revenue commitments for Trainium and Graviton grew more than 20x year-over-year, and the chip business as a whole maintained triple-digit growth. Trainium is mainly used for AI model training and inference, while Graviton is aimed at general-purpose cloud computing.
In the third quarter, Amazon also disclosed new AWS agreements signed with companies including Meta, Nvidia, OpenAI, Salesforce, Oracle, Qualcomm, Verizon, and Stripe. However, the company did not disclose one by one the corresponding chip models, computing scale, and procurement amounts of these agreements.
However, procurement or computing 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 of its in-house chip business has exceeded $25 billion.
Amazon revealed that it is expanding deployment of its next-generation chips and plans to expand the use of Trainium outside AWS in the second half of 2027.
Previously, Anthropic used Trainium 2 to build the Project Rainier computing cluster, with a deployment scale of more than 500,000 chips.
Expanding external use will add a new sales channel for Trainium, but it also requires Amazon to further improve its software ecosystem, supply chain, and customer support.
Graviton mainly serves EC2 cloud computing instances. Amazon hopes to use its in-house CPU to improve server performance and energy efficiency while reducing dependence on external processor suppliers.
Full-year capital expenditure maintained at $220 billion
AI infrastructure investment continues to push up Amazon's cash spending.
In the third quarter, Amazon's cash spending on purchases of property and equipment reached $77.259 billion, compared with $35.095 billion in the same period last year; after deducting proceeds from asset sales and related incentives, net spending was $75.878 billion. Cash spending on purchases of property and equipment in the first three quarters totaled $175.670 billion.
Amazon maintained its expectation of approximately $220 billion in cash capital expenditure for the full year and did not further raise it in this earnings report. The company had previously raised its full-year investment plan to this level, mainly for data centers, servers, network equipment, and AI infrastructure construction.
Capital expenditure growth has also begun to affect cash flow. For the trailing 12 months ended September 30, Amazon's operating cash flow reached $168.3 billion, up 29% year-over-year. Free cash flow was negative $42.4 billion, compared with 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 expenditure increased by $94.8 billion, exceeding the increase in operating cash flow. This is also the main reason free cash flow turned negative.
The market begins to focus on return on investment
Amazon expects fourth-quarter revenue of $240 billion to $247 billion, up 12% to 16% year-over-year; operating income of $28.5 billion to $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; the midpoint of the company's guidance is $243.5 billion, slightly below analyst expectations. After the results were released, both Reuters and The Wall Street Journal linked the stock decline to the revenue outlook, capital expenditure, and free cash flow pressure.
The fourth quarter is Amazon's most important retail sales season of the year. The company expects advertising business growth to recover to double digits and plans to hire about 300,000 seasonal employees in the United States to meet order demand during the holiday shopping season.
Before this earnings report was released, the market expected Amazon's third-quarter revenue to be about $202.2 billion, adjusted earnings per share of about $1.97, and AWS growth of about 37% to 38%. Actual AWS performance exceeded expectations, but revenue, earnings per share, and fourth-quarter revenue guidance all fell short of market requirements.
Investors' focus is concentrated on two aspects: first, whether AWS can maintain its current growth rate; second, when the massive capital expenditure will be converted into revenue and cash flow.
AWS's accelerated growth shows that demand for enterprise cloud computing and AI computing power is still expanding. But Amazon's infrastructure investment is also rising rapidly, and free cash flow has turned negative over the past 12 months. The fourth-quarter revenue guidance being below market expectations means investors still need to see more evidence confirming that newly added computing capacity can continue to be converted into business revenue and profit.
