Amazon Shares Fall Over 7% as Q3 Misses Estimates and AI Capex Drives Negative Free Cash Flow
Amazon reported Q3 revenue and EPS below expectations. Despite strong AWS growth, massive AI infrastructure spending led to negative free cash flow, causing shares to drop more than 7% in after-hours trading.
U.S. e-commerce and cloud giant Amazon.com Inc. released its third-quarter financial results on October 29, 2026. The company reported adjusted earnings per share of $1.89, missing the Wall Street consensus of $1.96. Total revenue reached $201.94 billion, up 12% year-over-year but slightly below the analyst estimate of $202.31 billion. Following the announcement, Amazon's shares fell more than 7% in late trading.
Net income for the quarter came in at $20.69 billion, down from $21.19 billion in the same period one year earlier. This decrease was primarily due to a $9.5 billion pretax gain recorded last year from Amazon's investment in artificial intelligence startup Anthropic PBC. Excluding this one-time factor, core profitability remained relatively stable.
Investors were particularly concerned about the impact of Amazon's heavy spending on AI infrastructure. Chief Financial Officer Brian Olsavsky reiterated the company's full-year capital expenditure forecast of $220 billion. However, actual capex for the third quarter surged to $77.3 billion, far exceeding the Street's estimate of $58.7 billion and more than double the $35.1 billion spent in the same period last year. Olsavsky attributed the higher spending to increased purchases of property and equipment for AI investments.
This aggressive spending strategy pushed Amazon's free cash flow into negative territory, reaching -$42.4 billion for the quarter, marking the second consecutive quarter of deficit. CEO Andy Jassy stated during the conference call that the company plans to "spend more meaningfully in 2027," adding that it has a "clear line of sight to attractive financial returns."
Amazon Web Services (AWS), the company's primary growth engine, performed strongly, with revenue growing 39% year-over-year to $45.98 billion, slightly ahead of expectations. Jassy noted that thanks to ongoing AI buildout investments, AWS sales growth is expected to accelerate to "over 40%" in the next year and fiscal 2028. He also claimed AWS is on track to generate more than $1 trillion in annual revenue within five to ten years. Additionally, Amazon's custom Graviton and Trainium chip businesses continue to grow at triple-digit percentages year-over-year, with plans to make Trainium chips available to external customers by the end of next year.