Amazon reported its July–September results on October 29, 2026. Revenue at its cloud business, AWS (Amazon Web Services), rose 39% year over year to $45.98 billion, which the company says is its fastest growth rate in roughly five years. Yet while Amazon's consolidated operating cash flow rose $6.9 billion from a year earlier, purchases of property and equipment, which is essentially capital spending, rose $42.2 billion. The increase in operating cash flow was only about 16% of the increase in equipment purchases, which suggests that the extra cash generated by AWS's rapid growth has not kept pace with the expansion in capital spending. This article examines that cash balance using the earnings materials, and considers whether the reported $578 billion AWS backlog justifies the up-front investment.
AWS growth has accelerated for five straight quarters
AWS revenue for July–September was $45.98 billion, up 39% from $33.01 billion a year earlier. Operating income also rose 55%, from $11.43 billion to $17.77 billion. Excluding currency effects, revenue growth rose from 17% in April–June 2025 to 20%, 24%, 28%, 37% and 39%, an increase for five consecutive quarters. The numbers make clear that AWS growth is accelerating on the back of expanding AI demand.
Amazon's total revenue rose 12% year over year to $201.94 billion, and operating income was $28.08 billion, for an operating margin of 13.9%. The timing of the Prime Day sales event shifted from July–September last year to April–June this year, and Amazon says that without the change, revenue growth would have been about 4 points higher. Net income was $20.69 billion, slightly below $21.19 billion a year earlier. The company cited as the main reason for the decline a pre-tax valuation gain of $9.5 billion on its investment in AI company Anthropic, which was included in the year-earlier profit.
Retail growth, by contrast, was relatively modest. Online stores revenue was $68.47 billion, up only 2% year over year. Advertising revenue was $19.64 billion, but growth excluding currency effects slowed from 26% in the previous quarter to 12%. Amazon attributed this partly to the change in Prime Day timing, and expects growth to recover to the high teens in October–December.
On capital spending, Amazon maintained its outlook of roughly $220 billion in cash capital expenditures for 2026. According to CNBC, CEO Andy Jassy also said on the earnings call that Amazon will "spend meaningfully more" in 2027 than in 2026. The company intends to keep expanding investment in line with AWS growth, but the financial burden is growing with it.
The increase in operating cash flow was about 16% of the increase in capital spending
The most notable point in these results is the gap between the pace of growth in operating cash flow and in capital spending. Consolidated operating cash flow for July–September rose $6.9 billion, from $35.5 billion a year earlier to $42.4 billion. Purchases of property and equipment, meanwhile, rose $42.2 billion, from $35.1 billion to $77.3 billion. In other words, the increase in operating cash flow was only about 16% of the increase in equipment purchases. Both figures come from the consolidated cash flow statement for the three-month period, and the purchase amounts are gross figures before deducting proceeds from asset sales and similar items.
Comparing operating cash flow with total equipment purchases, operating cash flow was about 101% of purchases a year earlier, but fell to about 55% this quarter. A year ago, operating cash flow exceeded equipment purchases by about $0.4 billion; this quarter it fell short by about $34.8 billion. Note that the 16% figure compares year-over-year increases only. It does not mean that total operating cash flow covers just 16% of capital spending.
Amazon does not disclose cash flow for AWS alone, so the entire shortfall cannot be attributed to AWS capital spending. Still, the company explains in its earnings materials that the increase in capital spending mainly reflects investment in AI. Expansion of AI infrastructure is clearly weighing on consolidated cash flow.
This picture also shows up in the free cash flow (FCF) that Amazon discloses. The company's FCF is operating cash flow minus purchases of property and equipment, adjusted for proceeds from sales and incentives. Trailing twelve-month FCF swung from a $14.8 billion surplus a year earlier to a $42.4 billion deficit. Because the deficit stood at $7.6 billion at the end of the previous quarter, it grew more than fivefold in just three months.
The burden of capital spending will also affect future income statements. When equipment is acquired, the full purchase price does not become an operating expense at once; it is recorded as an expense over several years through depreciation. Depreciation and related expenses for July–September already rose about 25%, from $16.8 billion a year earlier to $20.9 billion, showing that past capital spending is starting to appear as expense.
There are changes on the financing side as well. Cash flow from financing activities was an inflow of $48.9 billion, a sharp swing from an outflow of about $0.04 billion a year earlier. Interest expense also rose, from $0.54 billion to $1.69 billion. As external funding grows, its cost is starting to weigh on profit.
Does a $578 billion backlog justify the massive investment?
The leading counterargument to these funding pressures is that AWS already has enormous demand, so spending ahead of revenue is rational. According to GeekWire, Jassy said on the earnings call that the AWS backlog had reached $578 billion, more than double the level a year earlier. This refers to the value of contracted business that has not yet been recognized as revenue. If a backlog that large exists, current capital spending can be read as up-front investment to secure future revenue.
The earnings materials also contain figures supporting demand growth. On Amazon Bedrock, AWS's generative AI service, spending by Fortune 500 companies rose about 7 times from a year earlier, and the volume of tokens processed rose about 17 times. AWS's operating margin was 38.7%, up from 34.6% a year earlier, showing that it is maintaining high profitability even as demand surges.
Even so, this does not change the assessment at this point. The backlog represents contract value that will lead to future revenue, and the timing of cash collection differs by contract. Moreover, the $578 billion backlog figure does not appear in the earnings materials; it is based on management's remarks on the call. And while AWS's operating margin improved from a year earlier, it fell from 39.4% in the previous quarter.
The issue this analysis raises is only the gap in growth between operating cash flow and capital spending in July–September; it does not argue that the massive investment will ultimately fail to pay off. According to CNBC, Jassy also said on the call that he expects attractive financial returns from the investment. However, it may take time for those returns to show up in actual cash flow.
One development related to Japan is that the voice AI service Alexa+ has expanded to Japan, along with Australia and India. However, the earnings materials do not disclose revenue for Alexa+ alone, so it is impossible to judge how much the rollout contributes to operating cash flow, and it does nothing to explain the cash balance gap in this quarter.
Shares fell more than 7% after hours; the next focus is cash flow improvement
On October 29, the earnings announcement date, Amazon shares closed regular trading at $243.79, down 4.3% from the previous day, according to Financial News. In after-hours trading following the results, the stock fell more than 7% further, CNBC and GeekWire reported. However, the decline had already begun in regular trading before the announcement, so the drop cannot be attributed entirely to the results. After-hours prices should also be distinguished from the regular-session close.
The same week, CNBC reported that Microsoft lowered its annual capital spending outlook from $175 billion to $170 billion, while Alphabet maintained its outlook of $195 billion to $205 billion. Amazon, by contrast, signaled that it will increase capital spending further in 2027. As major technology companies keep pouring money into AI infrastructure, Amazon is aiming for a particularly aggressive expansion of investment.
The key to testing this assessment is how closely the increase in operating cash flow keeps pace with the increase in capital spending next quarter. Specifically, divide the year-over-year increase in operating cash flow by the year-over-year increase in purchases of property and equipment. If this ratio clearly exceeds the roughly 16% seen in July–September, that would be evidence that operating cash flow growth is starting to catch up with the expansion in capital spending. However, the ratio can improve simply because the growth in equipment purchases slows, so it is also necessary to check the increase in operating cash flow itself and the actual amount of equipment purchases.
Purchases of property and equipment for January–September 2026 totaled $175.7 billion. Applying the annual outlook of about $220 billion in a simple calculation gives October–December spending of about $44.3 billion, below the $77.3 billion in July–September. However, the company's annual outlook is on a cash expenditure basis, and its definition differs from the purchase amounts in the cash flow statement, so the two will not necessarily match exactly.
Amazon has also signaled that it will expand capital spending further in 2027. Given the company's outlook for growth of more than 40% in 2027 and 2028, the key question is whether it can expand operating cash flow enough as the investment burden rises. AWS's expanding demand and high profitability are clear strengths, but how quickly they can be turned into cash-generating power on a consolidated basis will be the focus in evaluating future investment.