Amazon shares drop over 7% as Q3 earnings miss forecasts and AI spending pressures cash flow

UPDATE - follow-up to Amazon posts negative free cash flow of $42.4 billion, holds 2026 capex unchanged: Amazon shares tumbled more than 7% in after‑hours trading Thursday after the retailer posted third‑quarter earnings and revenue that fell short of analyst forecasts.

What Happened

Revenue for the quarter missed Wall Street expectations, with total sales coming in below consensus. Amazon kept its 2026 capital‑expenditure outlook steady at $220 billion, saying spending will stay at that level this year. CEO Andy Jassy told investors the firm plans to spend “meaningfully more in 2027” and sees a clear path to strong financial returns.

Key Figures

AWS revenue rose 39% year over year to $45.98 billion, beating the $45.29 billion estimate. Online retail sales grew 2% to $68.47 billion, missing the $69.68 billion forecast. Advertising revenue increased 11% to $19.64 billion, also below the $20.82 billion consensus. Fourth‑quarter revenue is projected between $240 billion and $247 billion, a midpoint shy of the $244.5 billion Wall Street median.

Financial Pressure

The company posted a second consecutive quarter of negative free cash flow, with a twelve‑month outflow of $42.4 billion, a 386% rise from a year earlier. The shortfall stems mainly from higher property and equipment purchases tied to AI investments. Jassy highlighted AWS’s “over 40%” growth target for next year and 2028, and said the cloud unit aims to become a $1 trillion revenue business within five to ten years. He also said Trainium chips will be offered to external customers late in 2027.

Context

The results show Amazon’s aggressive AI spending is squeezing cash flow even as its cloud business accelerates, mirroring a broader slowdown in hyperscaler capex across the sector.