Amazon's AWS Grows 39% as AI Spending Pushes 12-Month Free Cash Flow Below Zero

Amazon delivered a striking split in its third-quarter 2026 results: its cloud business accelerated sharply and the company posted its highest operating margin on record, yet heavy infrastructure investment pushed free cash flow deeply below zero over the preceding 12 months.

AWS is growing quickly, but cash generation tells a different story

In results released on October 29 for the quarter ended September 30, Amazon Web Services reported net sales of $45.98 billion, up 39.3% from approximately $33.01 billion a year earlier. AWS operating income reached $17.77 billion, compared with $11.43 billion in the prior-year quarter.

Across Amazon, quarterly net sales rose 12% to $201.94 billion and operating income increased to $28.08 billion from $17.42 billion. The resulting 13.9% companywide operating margin was a record, according to Amazon. These are quarterly operating results, not measures of free cash flow.

The contrast appears in the trailing 12 months ended September 30, 2026. Operating cash flow rose 29% to $168.3 billion, but purchases of property and equipment, net of proceeds and incentives, reached about $210.7 billion. Under Amazon's stated free-cash-flow calculation, that produced an outflow of $42.4 billion, compared with a positive $14.8 billion for the previous 12-month period. It does not mean Amazon lost $42.4 billion in the third quarter: the company reported quarterly net income of $20.7 billion. The free-cash-flow measure was already negative at $7.6 billion for the trailing 12 months ended June 30, 2026; the outflow widened by September.

Why the AI investment bill matters

Amazon attributed the year-over-year increase of approximately $94.8 billion in net property and equipment purchases primarily to artificial intelligence investment. It also reaffirmed its expectation of approximately $220 billion in cash capital expenditures for the full year 2026; this was not a new quarterly spending figure.

The figures frame the central question for investors: can demand for cloud and AI services grow fast enough, for long enough, to justify today's infrastructure costs? Strong AWS revenue and operating profit show that the cloud business is expanding. They do not, by themselves, establish when the wider investment program will translate into positive free cash flow.

What investors can check next

For the fourth quarter of 2026, Amazon guided to net sales between $240 billion and $247 billion, and operating income between $28.5 billion and $33.5 billion. Those are management projections, not reported results. Future AWS growth, capital spending, and the conversion of operating cash into free cash flow will help clarify the economic payoff from the buildout.

Amazon is an S&P 500 constituent, so the tension between cloud growth and AI infrastructure spending is relevant well beyond one company's quarterly report. The numbers illustrate a broader issue facing investors in large U.S. technology businesses, without establishing how the S&P 500 itself will move.

Sources and dates: Amazon's October 29, 2026 earnings release and SEC-filed exhibit; S&P Dow Jones Indices constituent information. All financial figures refer to the reporting periods identified above, not live market prices.

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