Amazon Shares Fall 7.5% as AI Spending Turns Cash Flow Negative

Amazon.com shares dropped 7.5% in premarket trading on Friday after the company’s third-quarter revenue and earnings came in slightly below analyst forecasts and heavy AI spending pushed its free cash flow into negative territory, Yahoo Finance reported.

Net sales rose 12% to US$201.9 billion from US$180.2 billion a year earlier, according to the company’s results release. Yahoo Finance said analysts had expected US$202.10 billion. Diluted earnings per share came to US$1.89, against US$1.95 a year earlier and an analyst estimate of US$1.96.

Net income slipped to US$20.7 billion from US$21.2 billion. Amazon attributed the decline mainly to US$9.5 billion in pre-tax gains from its investments in Anthropic that were booked in the third quarter of 2025. Operating income, by contrast, climbed to US$28.1 billion from US$17.4 billion, and the company said its 13.9% operating margin was its highest ever.

AWS growth accelerates

Amazon Web Services net sales grew 39.3% to US$46.0 billion, which the company described as the unit’s fastest growth in nearly five years, taking it to an annualised revenue run rate of US$184 billion. AWS operating income rose to US$17.8 billion from US$11.4 billion.

North America sales increased 6% to US$112.9 billion and International sales rose 5% to US$43.1 billion. Amazon said moving Prime Day into the second quarter in most large countries meant third-quarter growth would otherwise have been about 400 basis points higher. Foreign exchange reduced revenue by US$0.9 billion.

President and CEO Andy Jassy said the company’s investment in AWS functionality and infrastructure was paying off, and projected AWS revenue growth of more than 40% in both 2027 and 2028. He added: “There has never been a trillion dollar revenue business,” saying Amazon may have two of them within the next five to 10 years.

Spending weighs on cash flow

Free cash flow for the trailing twelve months was an outflow of US$42.4 billion, compared with an inflow of US$14.8 billion a year earlier. Amazon said this reflected a US$94.8 billion year-on-year increase in purchases of property and equipment, net of proceeds and incentives, primarily tied to AI investments. Operating cash flow over the same period rose 29% to US$168.3 billion.

The company said it still expects 2026 cash capital expenditure of about US$220 billion. Analysts at Truist said management continues to “earn the right to invest” despite the near-term hit to free cash flow, as the investments become increasingly de-risked, according to Yahoo Finance.

What’s next with AI Spending

For the fourth quarter, Amazon guided net sales of US$240.0 billion to US$247.0 billion, or growth of 12% to 16%, including an unfavourable currency impact of about 60 basis points. Yahoo Finance noted the consensus estimate was US$244.30 billion, leaving the low end of the range well below expectations. Operating income is forecast at US$28.5 billion to US$33.5 billion, compared with US$25.0 billion a year earlier, and advertising revenue is expected to grow in the high teens.

Amazon also said it plans to hire more than 300,000 seasonal and other workers for the holiday season. According to Yahoo Finance, investors will be watching whether the AI spending translates into sustainable profitability and stronger cash generation, as well as the contributions from AWS and advertising during the holiday quarter.

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