Amazon Reports Substantial Cash Burn in Q3 with Increased Capital Expenditure Forecast
On October 29, Reuters reported that Amazon.com disclosed significant cash outflows for the third quarter, which caused a notable decline in its stock price.
The company indicated anticipatory capital expenditures for the upcoming year, building upon an already considerable budget for 2026.
Despite Amazon Web Services (AWS), its lucrative cloud computing segment, continuing its upward trajectory, the company’s heightened expenditure in response to artificial intelligence (AI) demand eclipsed the more conventional growth metrics that investors typically seek. This trend suggests that further spending in this area is forthcoming.
The Seattle-based giant is projecting revenues between $240 billion and $247 billion for the fourth quarter, slightly below the consensus estimate of $244.51 billion per LSEG, with the midpoint of $243.5 billion reflecting a modest decline.
In the aftermath of this announcement, investor sentiment soured, resulting in a nearly 7% dip in shares during after-hours trading, after a 4.3% drop during regular trading hours, closing at $243.79.
This decline mirrored a broader selloff in technology stocks, spurred by Intel’s warning of waning PC revenues for the first half of the upcoming year, which precipitated a staggering 23% fall in its shares post-market.
Furthermore, Alphabet’s shares experienced their most severe single-day decline in history, dropping 12% in regular trading.
Amazon’s cash burn reached $42.4 billion on a trailing 12-month basis for the September quarter, driven by capital expenditures amounting to $77.26 billion—approximately $20 billion over expectations, as per LSEG data.
In contrast, the company recorded a cash burn of $7.6 billion in the preceding quarter and generated $14.8 billion in the third quarter of the previous year.
Dave Wagner, a portfolio manager at Aptus Capital Advisors, remarked, “The free cash flow reflects the less palatable aspects of this report. Although operations have generated ample cash, capital expenditures have voraciously consumed it.”
He further noted, “The trend appears stark and disconcerting, which is particularly alarming in this context.”
Like its competitors, Amazon has committed substantially to AI developments, projecting capital expenditures of $220 billion for the current year.
Both Amazon and Google’s parent company Alphabet have sustained their spending forecasts, while Microsoft recently adjusted its estimate downwards to $170 billion from $175 billion.
CEO Andy Jassy addressed analysts during a conference call, indicating expectations for “meaningfully more” capital expenditures next year compared to 2026, though he offered no further details.
Jassy attempted to alleviate investor apprehensions in light of the quarterly results, asserting, “Our strategy is effective, and I anticipate its continued efficacy in the foreseeable future.”
He added that AWS could potentially generate a trillion dollars in revenue within the next five years, noting, “Our investments in AWS functionality and infrastructure are yielding results.”
He further contended, “I am unaware of any retail business approaching Amazon’s revenue scale.”
Nonetheless, Jesse Cohen, a senior analyst at Investing.com, pointed to Amazon’s free cash flow and “lackluster guidance” as contributing factors to the decline in stock value, characterizing the third-quarter report as a “double disappointment.”
Cloud Business Fuels Growth
Amazon Web Services reported a remarkable 39% revenue increase, amounting to $46 billion for the third quarter ending in September, surpassing analysts’ predictions of a 38.2% growth to $45.61 billion, according to LSEG data. In the previous quarter, AWS had recorded a 37% revenue increase.
Conversely, advertising revenues registered only a 12% increase year-over-year, totaling $19.6 billion, falling short of the 18% estimate from LSEG.
This represented the first occasion in seven quarters that Amazon’s advertising revenue missed analysts’ expectations, signifying a considerable slowdown compared to growth rates of 26% and 22% in the second quarter and third quarter of 2025, respectively.
Despite this, Jassy expressed satisfaction with the advertising revenue, attributing the dip partially to the rescheduling of the Prime Day discount event to the second quarter, which influenced overall ad performance. He anticipates a rebound to “high teens” growth in advertising sales for the current quarter.
He dismissed concerns that AI shopping agents, which automate purchasing processes, adversely affected ad sales, highlighting that during the quarter, the company restricted Meta’s Muse agent from accessing its platform for customer shopping activities.
The challenged fourth-quarter projections suggest potential difficulties for U.S. retailers during the holiday season, as consumers begin to tighten their shopping budgets amidst rising gasoline prices and the escalating cost of living.
Nevertheless, industry forecasts indicate a positive outlook for holiday sales, with the National Retail Federation predicting a 4.2% increase in total U.S. holiday sales.
While retail sales remain the predominant source of Amazon’s revenue, there has been a pronounced shift in investor attention towards its cloud computing division, AWS, particularly as the technology firm invests heavily to expand data center capabilities and compete in the international AI landscape.
Notably, Amazon’s cloud segment demonstrated its fastest growth rate in nearly five years.
Furthermore, within its e-commerce operations, Amazon continues to enhance delivery services worldwide and expand offerings in more rural areas of the U.S. to attract a broader customer base.
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