Amazon's Best-Ever Margins Couldn't Outrun Its AI Spending Bill

Amazon posted a 13.9% operating margin, the highest in its history, and grew AWS sales 39% to $46.0 billion. After the close on October 29, the stock still plunged more than 6% in extended trading. The tape looked through $28.1 billion of operating income and priced the cost of producing it: trailing-twelve-month free cash flow swung to a $42.4 billion outflow, and 2026 cash capital expenditures are still expected to be approximately $220 billion.

The third-quarter release put net sales at $201.9 billion, up 12% from $180.2 billion a year earlier and up 13% excluding foreign exchange. Operating income rose to $28.1 billion from $17.4 billion. AWS operating income climbed to $17.8 billion from $11.4 billion, and the cloud unit's annualized revenue run rate reached $184 billion. Those are the figures that used to define a clean beat. They arrived this time next to a capital budget that is still rising.

A cloud beat against consumer misses

Against Wall Street, the mix was uneven. Earnings of $1.89 a share came in below the $1.96 LSEG estimate. Revenue of $201.94 billion missed the $202.31 billion estimate. AWS, at $45.98 billion, beat the $45.29 billion estimate. Advertising of $19.64 billion missed $20.82 billion. Online sales rose 2% to $68.47 billion, short of the $69.68 billion estimate.

Net income was $20.7 billion, or $1.89 per diluted share, down from $21.2 billion, or $1.95, a year earlier. Amazon said the decrease was driven primarily by a $9.5 billion pre-tax gain from its Anthropic investment recorded in the third quarter of 2025. The year-ago comparison is distorted by that mark. The operating line still expanded by more than $10 billion. Extended-hours trading still sold the stock.

Cash flow flipped by the AI buildout

Trailing-twelve-month operating cash flow was $168.3 billion, up 29% from $130.7 billion. Free cash flow over the same stretch was an outflow of $42.4 billion, versus an inflow of $14.8 billion a year earlier. Amazon said that swing was driven primarily by a $94.8 billion year-over-year increase in purchases of property and equipment, net of proceeds, which primarily reflects AI investments. The profit engine is throwing off more cash from operations. The infrastructure bill is absorbing it, and then some.

Capital expenditures in the quarter reached $77.3 billion, up from $35.1 billion a year earlier. Management is still planning approximately $220 billion of cash capital expenditures for 2026. Microsoft lowered its 2026 capex forecast to $170 billion from $175 billion. Alphabet maintained guidance at $195 billion to $205 billion. Amazon did not trim.

Guidance holds, and 2027 spending rises

Fourth-quarter net sales are guided to $240.0 billion to $247.0 billion, or 12% to 16% growth. Operating income is expected at $28.5 billion to $33.5 billion, versus $25.0 billion in the fourth quarter of 2025. The low end of that operating-income range sits just above the $28.1 billion Amazon printed in the third quarter, even as sales are guided well above the just-reported $201.9 billion. The setup leaves less operating leverage in the holiday quarter than the top-line step-up might suggest.

Chief executive Andy Jassy tied the spend to cloud growth already in hand. "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," he said. On the earnings call, Jassy said the company expects to "spend meaningfully more in 2027" and has a "clear line of sight to attractive financial returns." He also said AWS will be a $1 trillion revenue business in the next five to 10 years.

Record margins and 39% AWS growth arrived in the same quarter as a $42.4 billion free cash flow outflow, a $220 billion 2026 capex plan, and a promise to spend more again next year. After hours, that spending path set the price.