Amazon shares sink as it spends heavily on AI
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Amazon shares fell sharply in extended trading Thursday after it reported plummeting free cash flow tied to its heavy investments in AI.
Why it matters: Investors are scrutinizing the heavy costs of AI infrastructure investments — a microscope that also dragged down Alphabet shares today after the Google parent's earnings report.
Driving the news: Amazon reported Thursday that its free cash flow was negative $42.4 billion over the 12 months ended Sept. 30, 2026, compared with a positive $14.8 billion in the year ended Sept. 30, 2025.
- The company attributed the swing primarily to a $94.8 billion increase in purchases of property and equipment connected to its AI investments.
- It expects 2026 cash capital expenditures of $220 billion.
The impact: Amazon shares were down 6.5% in after-hours trading.
Zoom in: The company reported revenue of $201.9 billion, up 12% from a year earlier, short of S&P Capital IQ estimates of $202.2 billion.
- Its net income totaled $20.7 billion, also short of S&P Capital IQ estimates of $21.4 billion.
State of play: Amazon is under pressure to show that its AI investments are paying off.
- Amazon Web Services CFO John Felton told Axios earlier this month that he's "comfortable about what we're doing" with capex, noting a nearly $500 billion order backlog as of Q2.
- His comments came after Gartner research analysts rattled investors with a report estimating that more than $3.5 trillion in AI infrastructure spending "could be exposed to impairment" by the end of 2030.
What they're saying: Amazon CEO Andy Jassy said that AWS' backlog has grown to $578 billion, up from $496 billion at the end of the second quarter.
- "Almost as fast as we install capacity, customers are gobbling it up," Jassy said on the company's earnings call.
- He added that Amazon expects "to spend meaningfully more" on capex in 2027.
Another data point from Thursday's earnings report that might've unnerved investors was the 12% growth in advertising, compared with the same period a year earlier. That trailed the previous quarter's 26% year-over-year growth.
- Jassy noted the period had "some timing anomalies" affecting ad spending, including a shift in Prime Day timing from the third quarter into the second quarter in most international markets.
Friction point: The company's ad business could come under pressure as consumers turn to AI agents to help shop for them, though Amazon recently blocked Meta's popular Muse agent from its platform.
- "Muse traction will likely drive questions on Amazon's agentic strategy," Bank of America analyst Justin Post wrote this week in a research note.
Editor's note: This story has been updated with additional details.
