Amazon just handed investors a reason to worry and a reason to get excited in the same report. Third-quarter earnings fell short of estimates, free cash flow sank deeper into the red than expected, and management said it plans to spend meaningfully more on AI next year. The company also kept its full-year capital spending forecast unchanged.
The market’s first reaction was not kind. Revenue and earnings per share both came in just shy of estimates, and in a nervous market for AI stocks, small misses can sting. Shares fell more than 6% in after-hours trading after the results were released. Look past the dip, though, and there is a business that still has plenty going for it.
Amazon is still doing the heavy lifting
Amazon Web Services remains the star of the show. The cloud unit grew revenue 39.3% from a year earlier to $46 billion, its sixth straight quarter of faster growth, and it now runs at an annualized pace of about $184 billion. Operating income for the unit came to $17.8 billion, according to Amazon.
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That result edged past Wall Street’s forecast of about $45.6 billion. CEO Andy Jassy has long argued that most global IT spending, about 85%, still sits on premises, and that the next decade should see much of it shift to the cloud.
Demand does not look like it is fading. The AWS backlog reached $578 billion, growing at a triple-digit rate, and Jassy described it as well diversified. Amazon says it is installing an AI accelerator about every 14 seconds as customers take up new capacity nearly as fast as it arrives, according to Amazon.
Wall Street had started warming to this story earlier in the year. Back in March, Citi and JPMorgan raised their price targets on the stock as AWS growth picked up, and Amazon’s custom Trainium and Graviton chips were reportedly bringing in more than $10 billion a year. Citi also pointed to partnerships with Anthropic and OpenAI as a boost for AWS.
The spending bill keeps getting bigger
All of that growth costs money. On the earnings call, Jassy said Amazon still expects about $220 billion in cash capital spending this year and plans to spend meaningfully more in 2027, while the company spent $75.9 billion in the third quarter alone. CFO Brian Olsavsky said the AI investments have the potential to drive long-term revenue and free cash flow, The Motley Fool reported.
The cash impact is easy to see. Free cash flow over the trailing 12 months swung to an outflow of $42.4 billion, as reported by TheStreet. Investors who once counted on Amazon to throw off cash are now watching it pour that cash into data centers.
The cash pressure did not arrive suddenly. Back in 2025, Amazon’s free cash flow had already dropped to about $11.2 billion from $38.2 billion the prior year, driven largely by a roughly $50.7 billion jump in property and equipment outlays. AI was a big part of that increase, alongside logistics and data center buildout.
Amazon is not the only giant feeling it. Alphabet posted negative free cash flow of $9.1 billion in the third quarter, after spending about $51.4 billion on capital projects. Even so, Google Cloud revenue more than doubled in the period.
Why some investors are getting nervous
Amazon’s own founder has not been shy about the risks. Speaking at Italian Tech Week in October 2025, Jeff Bezos described AI as a kind of industrial bubble, one where separating the strong bets from the weak ones is genuinely hard for investors. His view on the technology itself remains optimistic.
That worry has now spread to the companies doing the building. Investors have started to fear that the eventual revenue from AI may not justify such heavy spending, which has made them more cautious about cloud giants like Amazon that are leading the infrastructure ramp-up, as reported by The Motley Fool.
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Jassy has tried to answer that concern head-on. He said Amazon keeps shortening the time its infrastructure needs to break even, though returns still differ between its core cloud business and its AI build-out, according to Amazon. “Almost as fast as we install capacity, customers are gobbling it up,” he said.
Analysts are watching the same issue. Bank of America flagged rising capital spending as a risk for Amazon, while noting that results should show strong returns on the capacity it is adding. Jassy said Amazon has a lot of capacity coming over roughly the next eight quarters.
Jassy is betting on a trillion-dollar cloud
Jassy is clearly not backing down. He said Amazon has a clear line of sight to attractive financial returns on its spending, and that AWS could grow more than 40% in each of 2027 and 2028 on its way to becoming a trillion-dollar revenue business in the next five to 10 years.
Some analysts are even more upbeat. Morgan Stanley’s Brian Nowak expects AWS to grow 47% in 2027 and 42% in 2028, and he has a $350 price target on the stock. Jassy also said Amazon may end up with two trillion-dollar revenue businesses within five to 10 years, with its online stores as the other candidate, TheStreet reported.
The valuation may help make the case. Amazon stock trades at about 30 times forward earnings estimates and sits around 14% below its August high. That is not the cheapest the stock has ever been, but it looks reasonable given how fast AWS is growing. For investors who can stomach some bumps along the way, that may be an attractive entry point.
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