Amazon Q3 Earnings Miss Estimates, Reports $42.4B Negative Free Cash Flow

Amazon's shares dropped over 7 percent in after-hours trading on Thursday following the company's release of its third-quarter financial results. The figures revealed both earnings and revenue that fell below Wall Street's expectations, prompting concern among investors about the tech giant's current momentum.

For the third quarter, Amazon reported earnings per share of $1.89, slightly underperforming the analyst consensus of $1.96, while revenue totaled $201.94 billion compared to the anticipated $202.31 billion. Despite the overall revenue missing estimates, Amazon Web Services (AWS) continued to show strength, generating $45.98 billion in revenue. This exceeded the forecast of $45.29 billion and marked a 39 percent year-over-year increase, outpacing the predicted 38 percent growth.

CEO Andy Jassy emphasized AWS's rapid expansion in the earnings statement, projecting revenue growth rates above 40 percent for both 2026 and 2028. He attributed this outlook to ongoing investments in AWS's infrastructure and capabilities, which the company says are yielding positive results.

On the other hand, Amazon's retail sector faced challenges. Online sales grew by only 2 percent to $68.47 billion, falling short of the expected $69.68 billion. Advertising revenue also declined, bringing in $19.64 billion against the consensus estimate of $20.82 billion. These segments remain critical to Amazon's business but are showing signs of softness amid evolving consumer behavior and market conditions.

One of the most notable aspects of Amazon's financial report was the company's capital expenditure outlook. The firm maintained its 2026 capital spending forecast at $220 billion, signaling continued heavy investment, particularly in artificial intelligence infrastructure. This aligns with a broader industry trend among major technology companies, often referred to as hyperscalers, who have been increasing their spending to support AI capabilities.

However, some peers are beginning to moderate their capital spending. Microsoft recently revised its 2026 capex forecast downward from $175 billion to $170 billion, while Alphabet has kept its guidance steady between $195 billion and $205 billion. Amazon's persistent high spending reflects its strategic focus but also contributes to significant cash flow pressures.

The company reported negative free cash flow of $42.4 billion for the trailing twelve months ending in the third quarter, representing a 386 percent increase in cash outflows compared to the previous year. This marks the second consecutive quarter of negative free cash flow, following a $7.6 billion outflow in the prior quarter. Amazon attributed this deficit primarily to increased purchases of property and equipment connected to its AI investments.

Despite these expenditures, Amazon's net income for the quarter was $20.69 billion, or $1.89 per share, down from $21.19 billion, or $1.95 per share, a year earlier. The decline largely reflects the absence of a $9.5 billion pre-tax gain from its investment in AI startup Anthropic, which had boosted earnings in the third quarter of 2024.

Looking ahead, Amazon forecasts fourth-quarter revenue between $240 billion and $247 billion, aligning closely with Wall Street's consensus estimate of $244.5 billion. The holiday season typically drives Amazon's strongest sales, making the upcoming quarter critical for the company's overall performance.

Amazon's financial results highlight the balancing act the company faces as it invests heavily in emerging technologies like AI, while managing slower growth in its core retail and advertising businesses. The large scale of its capital expenditures underscores the importance the company places on maintaining leadership in cloud computing and AI infrastructure amid intensifying competition.

As the market watches these developments, Amazon's future earnings and cash flow trends will provide key indicators of how successfully the company navigates this complex environment.