Amazon earnings and stock drop — AWS up 39%, but free cash flow at minus $42.4 billion
Amazon reported third-quarter results on October 29, 2026 (US time). Revenue rose 12% to $201.9 billion, operating margin hit a record 13.9%, and cloud unit AWS grew 39% to $46.0 billion, its fastest growth in five years. Yet shares traded about 7% lower before the October 30 open. Earnings per share of $1.89 missed the roughly $1.97 forecast, and the midpoint of fourth-quarter revenue guidance came in below expectations. The bigger reason is cash: Q3 capital spending more than doubled from a year earlier to $77.3 billion, and trailing twelve-month free cash flow swung from positive $14.8 billion to negative $42.4 billion
The three lines
- Results — revenue $201.9 billion (+12%), record 13.9% operating margin, AWS $46.0 billion (+39%)
- Letdown — EPS of $1.89 missed forecasts; the year-earlier quarter had a $9.5 billion Anthropic gain
- Cash — $77.3 billion quarterly capex, twelve-month free cash flow of -$42.4 billion, and more spending in 2027
Key questions
- amazon q3 2026 earnings
- **Revenue rose 12% to $201.9 billion and operating income rose 61% to $28.1 billion. Net income actually fell 2%.** | Item | Q3 2026 | Q3 2025 | |---|---|---| | Revenue | $201.9 billion | $180.2 billion | | Operating income (margin) | $28.1 billion (13.9%) | $17.4 billion (11.4%) | | Net income | $20.7 billion | $21.2 billion | | Diluted EPS | $1.89 | $1.95 | | AWS revenue | $46.0 billion (+39%) | $33.0 billion |
- why is amazon stock down after earnings
- **EPS and the Q4 outlook fell short of forecasts, and AI capital spending turned free cash flow sharply negative.** | Reason | Figure | |---|---| | EPS | $1.89 vs about $1.97 expected | | Q4 revenue guidance | $240 billion–$247 billion vs about $244.5 billion expected (midpoint below) | | Ad revenue growth | 12%, slowing from 26% the previous quarter | | Twelve-month free cash flow | -$42.4 billion (+$14.8 billion a year earlier) | | 2026 capex | Kept at about $220 billion; meaningfully more in 2027 |
- aws growth rate q3 2026
- **39.3%, accelerating for a sixth straight quarter. The backlog is $578 billion.** | Metric | Figure | |---|---| | AWS revenue | $46.0 billion (+39.3%) | | AWS operating income | $17.8 billion (+55%), about 63% of Amazon's total | | Annualized revenue | $184 billion | | Backlog | $578 billion | | Management outlook | Above 40% growth in both 2027 and 2028 | | Investor expectations (BofA) | As high as 42% |
Amazon is spending money on AI faster than AI is making it money. Amazon reported third-quarter results after the close on October 29, 2026 (US time). Cloud unit AWS grew 39%, its fastest in five years, and the company's overall operating margin hit a record 13.9%. Even so, shares fell nearly 7% before the October 30 open, trading at $226.26, against a previous close of $243.79.
There are three reasons. Earnings per share missed forecasts, the fourth-quarter outlook came in below expectations, and above all cash is flowing out fast. Free cash flow over the past twelve months was negative $42.4 billion. A year earlier it was positive $14.8 billion.
1. Q3 in numbers — operating income up 61%, net income down
| Item | Q3 2026 | Q3 2025 | Change |
|---|---|---|---|
| Revenue | $201.9 billion | $180.2 billion | +12% (+13% excluding currency) |
| Operating income | $28.1 billion | $17.4 billion | +61% |
| Operating margin | 13.9% (record) | 11.4% | +2.5 points |
| Net income | $20.7 billion | $21.2 billion | -2% |
| Diluted EPS | $1.89 | $1.95 | -3% |
| North America revenue (operating income) | $112.9 billion ($8.7 billion) | — | +6% |
| International revenue (operating income) | $43.1 billion ($1.6 billion) | — | +5% |
| AWS revenue (operating income) | $46.0 billion ($17.8 billion) | $33.0 billion ($11.4 billion) | +39% |
Operating income rose 61% while net income fell because of a one-off gain in last year's third quarter. In Q3 2025 Amazon booked $9.5 billion in pre-tax gains from revaluing its stake in AI company Anthropic. Against that high base, this year's net income and EPS came in below last year's. The core business did not get worse.
The 12% revenue growth also understates the picture. Prime Day was held in the second quarter rather than the third in most countries this year. Amazon said that without the shift, third-quarter growth would have been about 4 percentage points higher.
2. What disappointed the market — guidance, ads and cash
| Item | Amazon reported | Consensus |
|---|---|---|
| Q3 EPS | $1.89 | About $1.97 |
| Q3 revenue | $201.9 billion | About $202.25 billion |
| Q4 revenue guidance | $240 billion–$247 billion | About $244.5 billion |
| Q4 operating income guidance | $28.5 billion–$33.5 billion | About $33 billion at the midpoint |
| Ad revenue growth | 12% (26% the previous quarter) | — |
The midpoint of Q4 revenue guidance ($243.5 billion) was below expectations. Ad revenue growth dropping from 26% to 12% in a single quarter also stood out. Amazon said it expects ad revenue to grow in the high teens in Q4.
But the heaviest number of all is capital spending.
| Cash flow metric | Trailing twelve months (as of Sept 30) | A year earlier |
|---|---|---|
| Operating cash flow | $168.3 billion (+29%) | — |
| Purchases of property and equipment (quarter) | $77.3 billion | $35.1 billion |
| Purchases of property and equipment (twelve months) | $215.2 billion | $120.1 billion |
| Free cash flow | -$42.4 billion | +$14.8 billion |
| 2026 cash capex | About $220 billion (unchanged) | — |
| 2027 | Meaningfully more | — |
In a year, Amazon's cash position swung by about $57 billion. Amazon said most of the $94.8 billion increase went to AI. We explained why free cash flow can move differently from profit, using Meta as the example, in 'What is free cash flow (FCF)'. The verdicts Alphabet, Microsoft and Meta received the same week are summarized in 'Why big tech stocks split after earnings'. That piece's conclusion, whether AI spending is paid for out of earnings, applied to Amazon too.
3. Still, AWS — six straight quarters of acceleration, a $578 billion backlog
| AWS metric | Figure |
|---|---|
| Revenue growth | 39.3%, accelerating six quarters in a row; highest in about five years |
| Operating margin | About 38.7% (about 34.6% a year earlier) |
| Share of Amazon's total operating income | About 63% |
| Annualized revenue | $184 billion |
| Backlog | $578 billion |
| Inference share of AI revenue | Well over half (amount not disclosed) |
| Custom chips (Trainium, Graviton) | Revenue commitments each up more than 20x |
| Bedrock | Fortune 500 spending up about 7x; token usage up about 17x |
AWS generates 63% of operating income on less than a quarter of revenue. CEO Andy Jassy projected AWS will grow more than 40% in both 2027 and 2028, and said Amazon could have two businesses with $1 trillion in annual revenue within the next five to 10 years. The $578 billion backlog is money already under contract but not yet booked as revenue. Why that number matters, and why it should not be taken at face value, is covered separately in 'What is backlog (RPO)'.
Bank of America noted that investor expectations for AWS growth had risen as high as 42%. In other words, 39% was a strong number but not as strong as hoped. Brokerage price targets diverged: MoffettNathanson raised its target from $315 to $357 and UBS from $348 to $352, while Citizens cut from $315 to $275 and TD Cowen from $350 to $340.
4. Open questions / what is unconfirmed
- October 30 close: How much of the 7% pre-market drop was recovered during the session could not be confirmed at the time of writing.
- 2027 capex: Amazon said only that it will be meaningfully higher. A specific figure is likely with fourth-quarter results.
- Size of AI revenue: Amazon said inference is well over half of AI revenue but did not disclose AI revenue itself.
- Free cash flow math: Simply subtracting capital purchases from operating cash flow gives -$46.9 billion, which differs from the reported -$42.4 billion. The gap appears to come from a net-investment basis.
Warnings that AI infrastructure spending could outrun real demand are covered in 'Gartner warns of $3.5 trillion AI infrastructure impairment risk', and how much of planned data center capacity actually gets built is covered in 'Why AI data centers are not being built as planned'.
Sources
- Amazon Investor Relations — Amazon.com Announces Third Quarter Results (2026-10-29)
- US SEC — Amazon Form 8-K Exhibit 99.1 (2026-10-29)
- 24/7 Wall St. — Amazon Slides 7% as Earnings Miss and AI Spending Turn Free Cash Flow Negative (2026-10-30)
- Data Studios — Amazon Q3 2026 results: AWS grows 39% to $46B, $578B backlog (2026-10-30)
- CNBC — Amazon shares are tumbling after third-quarter earnings miss (2026-10-30)
- Yahoo Finance — Amazon shares sink as it spends heavily on AI (2026-10-29)