Amazon posted its Q3 financials today, beating estimates in its cloud segment but falling short overall. The company missed analyst expectations in total revenue and earnings per share, largely due to a sharp decline in free cash flow driven by hefty spending. Amazon Web Services (AWS), its cloud arm, stood out, showing strong growth and profitability amidst a mixed quarter.
Financial Highlights: What Went Right, What Didn’t
Total net sales rose 12% year over year to $201.9 billion, just shy of the $202.2 billion that analysts had expected. Fully diluted earnings per share came in at $1.89, below the forecast of $1.97. The cloud division, however, delivered a bright spot: AWS revenue jumped 39% over last year, reaching $45.98 billion—above the $45.29 billion consensus. The unit’s operating income also saw a significant boost, climbing from $11.4 billion to $17.8 billion versus Q3 2025.
Cash Burn and AI Spending Weigh Heavy
The most concerning metric for investors was free cash flow, which plunged to -$42.4 billion for the trailing twelve months—marking a swing from positive $14.8 billion in the same period last year. The primary culprit behind the cash outflow: massive investments in artificial intelligence. Amazon reaffirmed plans to spend about $220 billion in capital expenditures by the end of its fiscal year 2026, much of it earmarked for AI infrastructure.
With the holiday quarter approaching—the fourth quarter being Amazon’s biggest shop season—the company projects net sales between $240 billion and $247 billion. That forecast underscores how much the company is locking in capital spending, particularly for AI, even as it expects revenue to surge in Q4.
What to Keep an Eye On
AWS’s stellar performance remains Amazon’s central strength. Its cloud revenues are doing heavy lifting, helping offset weaker segments. But Amazon’s overall mix—balancing retail, logistics, entertainment, and cloud—faces pressure. High capital spending, especially on AI, signals faith in long-term returns but spells short-term cash burn.
What this means: Amazon — and by extension the broader tech sector — is in what feels like a pivotal moment. The company is leaning hard into AI: betting capital, gaming for cloud dominance. But with free cash flow in the red, the strategy invites scrutiny. Going forward, watch how well AWS keeps growing margins, how Amazon manages AI costs, and whether projected Q4 revenue can offset the cash bleed of Q3. If AI bet starts paying off convincingly, the sacrifices could look smart; if not, they might look risky.
