Amazon Shares Fell Up To 7% As Heavy AI Spending Hits Cash Flow Despite Fastest AWS Revenue Growth In Five Years

Amazon shares fell as much as 7% in after-hours trading on Thursday after the company reported a sharp deterioration in free cash flow and indicated that spending on artificial intelligence infrastructure would rise further next year.

The decline came despite strong growth at Amazon Web Services (AWS), its cloud computing business, which recorded its fastest revenue expansion in five years.

Amazon reported a cash outflow of $42.4 billion on a trailing 12-month basis in the September quarter, compared with an outflow of $7.6 billion in the previous quarter. The company had generated $14.8 billion in free cash flow in the corresponding quarter last year.

Capital expenditure reached $77.26 billion, around $20 billion higher than analysts had expected, according to LSEG data.

Amazon shares had already fallen 4.3% during regular trading to close at $243.79 before extending their losses after the results.

AWS Revenue Jumped 39%, Beat Estimates

Amazon Web Services reported revenue of $46 billion for the September quarter, up 39% from a year earlier. Analysts had expected revenue of $45.61 billion, representing growth of 38.2%.

The cloud business grew 37% in the June quarter. Its latest performance showed that demand for computing infrastructure and AI services remained strong.

Chief executive Andy Jassy told analysts that Amazon's investments in AWS infrastructure and services were delivering results. He also suggested that AWS could reach $1 trillion in annual revenue within five years.

The strong cloud numbers, however, were not enough to offset concerns about the amount Amazon is spending to support future growth.

Amazon Plans Higher Capital Spending In 2027

Amazon expects capital expenditure to reach $220 billion in 2026 as it continues building data centres and other infrastructure needed for AI.

Jassy said spending would be "meaningfully more" in 2027, although he did not provide a specific figure.

The company's spending plans come as other major technology firms are also investing heavily in AI infrastructure. Alphabet has maintained its capital expenditure outlook, while Microsoft recently reduced its spending forecast to $170 billion from $175 billion.

Dave Wagner, portfolio manager at Aptus Capital Advisors, pointed to Amazon's free cash flow as the weakest part of the results. He said the company was generating substantial cash from operations, but capital expenditure was absorbing more than that amount.

Advertising Growth Slowed, Holiday Sales Outlook Was Mixed

Amazon's advertising business also fell short of expectations. Revenue rose 12% year on year to $19.6 billion, compared with the 18% growth analysts had forecast.

It was the first time in seven quarters that advertising revenue missed estimates. Growth stood at 26% in the June quarter and 22% in the September quarter last year.

For the December quarter, Amazon forecast revenue of $240 billion to $247 billion. The midpoint of $243.5 billion was slightly below the LSEG consensus estimate of $244.51 billion.

The results arrived during a difficult session for US technology stocks. Intel shares plunged 23% in after-hours trading after the chipmaker warned of weaker PC demand, while Alphabet fell 12% during regular trading.

For Amazon, the concern is no longer whether AWS can grow quickly. Its latest numbers show that it can. Investors are now watching how much more the company will spend on AI infrastructure before that growth translates into stronger free cash flow.

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