Amazon Stock Drops as AI Spending Drives Cash Outflow

Amazon.com reported a record-breaking third-quarter operating margin of 13.9% and revenue of $201.94 billion, though GAAP EPS of $1.89 missed consensus estimates. Despite the record margins, the company's stock fell approximately 6.72% in premarket trading on Friday. Investors reacted negatively to a trailing 12-month free cash outflow of $42.4 billion, which resulted from aggressive spending on AI infrastructure.

To sustain this momentum, Amazon increased its full-year 2026 capital expenditure guidance to approximately $220 billion, up from $200 billion, with management signaling even higher spending for 2027. Amazon Web Services (AWS) remains the primary growth engine, reporting 39% revenue growth to $45.98 billion and a backlog of $578 billion. The cloud unit generated $17.8 billion in operating income with a 39% operating margin, providing a superior profit profile compared to the company's thinner-margin commerce segments.

During the earnings call, CEO Andy Jassy predicted that AWS could grow by more than 40% in both 2027 and 2028. He suggested that the industry may see two trillion-dollar revenue businesses emerge within the next five to ten years. Meanwhile, CFO Brian Olsavsky declined to provide specific margin guidance for the AWS unit.