Amazon stock drops as quarterly earnings miss estimates and cash flow outflows grow

UPDATE - follow-up to Amazon posts negative free cash flow of $42.4 billion, holds 2026 capex unchanged: Amazon shares dropped more than 7% in extended trading after reporting third-quarter earnings and revenue that missed Wall Street targets. Third-quarter net income fell to $20.69 billion from $21.19 billion a year ago. The company stated the drop was driven mainly by a $9.5 billion pre-tax gain from its investment in the AI startup Anthropic recorded in the 2025 third quarter. Fourth-quarter revenue is expected to land between $240 billion and $247 billion.

Spending and Cloud Growth

Capital expenditures reached $77.3 billion during the quarter, jumping from $35.1 billion a year earlier and beating analyst estimates of $58.7 billion. CEO Andy Jassy stated the company expects to spend meaningfully more in 2027 and holds steady on its 2026 spending forecast of $220 billion. Negative free cash flow reached an outflow of $42.4 billion for the trailing twelve month period. This shortfall came mainly from higher purchases of property and equipment for AI investments. Meanwhile, cloud segment sales jumped 39% to $45.98 billion, topping forecasts.

Retail and Advertising

Online sales rose 2% to $68.47 billion, missing the projected $69.68 billion. Advertising revenue grew 11% to $19.64 billion, which also missed consensus estimates. Both units were affected by Amazon moving its annual Prime Day sale into the second quarter in several countries to avoid the FIFA World Cup in July. Jassy noted that AWS could become a $1 trillion revenue business in the next five to ten years.

Context

Amazon continues to pour massive funds into artificial intelligence infrastructure, mirroring a broader trend across major tech companies investing heavily in data centers and chips. While cloud computing revenue is growing rapidly, the heavy upfront spending has heavily impacted cash flow and raised questions from investors about near-term returns.