Amazon's AI spending pushes free cash flow into a $42.4 billion outflow as AWS accelerates

Amazon (Nasdaq: AMZN) said its free cash flow over the 12 months to September 30 was an outflow of $42.4 billion, compared with an inflow of $14.8 billion a year earlier, as spending on equipment for artificial intelligence outran operating cash flow. The figures are in its third-quarter results release, filed with the SEC on Thursday.

What happened

Net sales rose 12% to $201.9 billion in the quarter ended September 30, from $180.2 billion a year earlier. Amazon said that Prime Day fell in the second quarter this year in most large countries but entirely in the third quarter of 2025, and that without this shift third-quarter growth would have been about 400 basis points higher.

Operating income rose to $28.1 billion from $17.4 billion. The company said the 13.9% operating margin was the highest in its history. Net income was $20.7 billion, or $1.89 a diluted share, against $21.2 billion, or $1.95, a year earlier; Amazon attributed the decrease mainly to pre-tax gains of $9.5 billion in the third quarter of 2025 from its investments in Anthropic.

Sales at Amazon Web Services (AWS), the cloud unit, rose 39% to $46.0 billion, which the company called its fastest growth in nearly five years. AWS operating income was $17.8 billion, up from $11.4 billion. North America segment sales rose 6% to $112.9 billion with operating income of $8.7 billion, and International segment sales rose 5% to $43.1 billion with operating income of $1.6 billion.

Why it matters

Amazon defines free cash flow as cash flow from operations reduced by purchases of property and equipment, net of proceeds from sales and incentives. Operating cash flow for the 12 months rose 29% to $168.3 billion. Net purchases of property and equipment rose by $94.8 billion over the same period, which Amazon said primarily reflects investments in artificial intelligence.

The company has financed part of the gap with borrowing. Its cash flow statement shows $115.1 billion of proceeds from long-term debt in the first nine months of 2026, and long-term debt on the balance sheet stood at $173.1 billion on September 30, against $65.6 billion on December 31, 2025. Interest expense in the third quarter was $1.7 billion, compared with $0.5 billion a year earlier.

AWS accounts for most of the operating profit. Its $17.8 billion was 63.3% of the company's $28.1 billion in operating income (computed from the segment figures), while AWS made up 23% of net sales. Amazon's supplemental tables show an AWS operating margin of 38.7% of segment sales.

Andy Jassy, Amazon's president and chief executive, said in the release: "Our AWS investment in functionality and infrastructure is working, with over 39% year-over-year revenue growth in Q3 ($184 billion revenue run rate) and projected revenue growth rates of over 40% both in 2027 and in 2028."

What to watch

For the fourth quarter, Amazon guided to net sales of $240.0 billion to $247.0 billion, which it described as growth of 12% to 16% from the fourth quarter of 2025. It guided to operating income of $28.5 billion to $33.5 billion, compared with $25.0 billion a year earlier, and said it continues to expect 2026 cash capital expenditures of approximately $220 billion.

Because free cash flow is reported as a trailing 12-month total, each quarter replaces the same quarter of the previous year in the figure. Amazon's guidance of about $220 billion of capital expenditures for 2026 and its projection of AWS revenue growth above 40% in 2027 and 2028 are the company's own expectations, and the company listed supply volatility for memory chips and customer demand and spending among the factors that could affect its results.