Amazon Q3 2026 earnings: AWS grows 39%, but free cash flow turns negative and AMZN falls

Amazon delivered its fastest AWS growth in nearly five years in the third quarter, then watched its stock fall anyway because of one number buried in the cash flow statement. Free cash flow over the trailing twelve months swung to a $42.4 billion outflow from a $14.8 billion inflow a year earlier, and nearly all of the gap came from money spent on artificial intelligence infrastructure. Investors that had cheered the AWS acceleration sold the stock on the bill that paid for it.

AMZN shares were down 4.25% to $243.79 after the report, according to Yahoo Finance data pulled on October 29, 2026. The market's reaction is the clearest signal yet that hyperscaler capex is now the swing factor in AI investing, the same trade-off that moved Alphabet's shares on free cash flow earlier in the week.

Related reading: Alphabet Q3 2026 earnings: free cash flow swings negative as AI capex builds.

Here is what the primary document says. Amazon.com Inc. (NASDAQ: AMZN) released third quarter results on October 29, 2026 via Business Wire. Net sales rose 12% year over year to $201.9 billion, or 13% excluding a $0.9 billion currency headwind. Operating income climbed to $28.1 billion from $17.4 billion a year earlier, lifting the consolidated operating margin to 13.9%, the highest Amazon has ever reported. Net income slipped to $20.7 billion, or $1.89 per diluted share, from $21.2 billion, or $1.95, a decline the company attributed mainly to pre-tax gains of $9.5 billion from its Anthropic investment that were booked in the same quarter last year.

The AI story is in the AWS segment. Net sales there reached $46.0 billion in the quarter, up 39% year over year, the fastest growth in nearly five years, on a $184 billion annualized revenue run rate. AWS operating income rose to $17.8 billion from $11.4 billion a year ago, and its operating margin expanded to 38.7% of AWS net sales from 34.6%. Chief Executive Andy Jassy tied the acceleration directly to computing capacity: the more AWS infrastructure Amazon brings online, the more it can convert backlog into revenue.

Related reading: Meta Stock Drops 6% After Lifting 2026 AI Capex Floor to $135 Billion.

Jassy went further on the trajectory. He projected AWS revenue growth of more than 40% in both 2027 and 2028, and said Amazon may run two trillion dollar revenue businesses within the next five to ten years. That framing lets Amazon argue the current spend is an investment that pays back, not a cost overrun.

The counterweight is capital intensity. Property and equipment purchases, net of proceeds from sales and incentives, rose by $94.8 billion year over year across the trailing twelve months, and Amazon said this increase primarily reflects investments in artificial intelligence. That is what flipped free cash flow negative. Amazon held its full year 2026 capital expenditure expectation at approximately $220 billion, the same number it has carried through the year.

Related reading: Amazon's Nvidia Financing Talks Meet a $7.6 Billion Cash Flow Gap.

Guidance for the fourth quarter keeps the pressure on both sides of the ledger. Amazon expects net sales of $240.0 billion to $247.0 billion, growth of 12% to 16% over the fourth quarter of 2025, and operating income of $28.5 billion to $33.5 billion, up from $25.0 billion a year ago. Operating cash flow for the trailing twelve months expanded 29% to $168.3 billion, which gives Amazon a large cushion even with the negative free cash flow.

The balance of the argument matters here, because the bull case is intact and not unreasonable. The 39% AWS growth and the 40% forward projection are the strongest prints Amazon has produced in this AI cycle, and the margin expansion shows the cloud business is monetizing demand, not just absorbing capacity. Management is betting that buying compute now compounds revenue later, and the revenue numbers so far back that bet.

Related reading: AI Markets Week: Meta Lifts 2026 Capex Floor to $135 Billion as GPU Debt Tightens.

The bear case is equally readable from the same documents. A company that runs a $42.4 billion annual free cash flow deficit while holding capex at $220 billion is financing its AI buildout with balance sheet capacity, and shareholders are paying for the dilution of cash generation. If AWS growth decelerates below the projection, the fixed cost base keeps growing regardless, which is exactly the setup that punished other hyperscaler stocks this week.

The read across for the AI complex is that hyperscaler capex remains the dominant variable. Amazon joins Microsoft and Alphabet in reporting an accelerating AI revenue line alongside a rising infrastructure bill, and the market is now rewarding the first and discounting the second with real money. The next data point on this beat is the pace of AWS capacity coming online and whether the 40% growth projection survives the next three quarters.

The regional split rounds out the quarter. North America segment sales rose 6% to $112.9 billion, International rose 5% to $43.1 billion, and both reported operating income gains, which is why Amazon could absorb the AWS buildout without pulling the consolidated margin down. The shift in Prime Day timing, which moved the retail event from the third quarter of last year to the second quarter this year, still penalized reported retail growth by roughly 400 basis points, a distortion the market has now seen in two consecutive quarters.

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