Amazon’s Q4 Outlook and AI Spending Weigh on Shares Despite AWS Growth

Amazon’s results put a widening gap between its fast-growing cloud business and the cash required to expand its infrastructure at the center of the investment debate. Shares fell after the company reported heavy cash use and gave a holiday-quarter revenue range that straddled, but did not clearly exceed, analyst expectations.

The Seattle-based company forecast fourth-quarter revenue of US$240 billion to US$247 billion. The analyst average compiled by LSEG was US$244.51 billion, placing that estimate inside Amazon’s range. The outlook leaves room for revenue to come in above or below the consensus figure, while offering investors little evidence of a clear upside surprise.

Amazon shares dropped nearly 7 per cent in extended trading after the results. They had already fallen 4.3 per cent during the regular session, closing at US$243.79. The reaction reflected concern about both the near-term sales outlook and the scale of investment weighing on free cash flow.

Capital spending absorbs operating cash

Amazon used US$42.4 billion on a trailing 12-month basis in the September quarter, against capital expenditure of US$77.26 billion. That spending was about US$20 billion above estimates compiled by LSEG. The cash-flow trend has shifted sharply: the company reported a US$7.6 billion cash burn in the prior quarter, while it generated US$14.8 billion in the third quarter of 2025.

Portfolio manager Dave Wagner of Aptus Capital Advisors said operating activity produced substantial cash, but capital spending consumed it. He described the free cash flow trend as steeply negative and a source of concern in the report. The distinction matters: a company can report solid operating performance while retaining less cash after major investment outlays.

Amazon’s spending is tied in large part to its expansion of data centres and artificial intelligence software and infrastructure. The company kept its 2026 capital expenditure forecast at about US$220 billion. Chief executive Andy Jassy told analysts that spending in 2027 would be “meaningfully more” than in 2026, without giving a figure.

Amazon has forecast US$220 billion in capital expenditures in 2026, as it builds capacity for cloud computing and artificial intelligence workloads. Alphabet, Google’s parent, and Amazon maintained their spending expectations. Microsoft, by comparison, lowered its forecast to US$170 billion from US$175 billion on Wednesday.

That comparison puts Amazon’s planned outlays in context, but it doesn’t settle whether the investment will produce returns quickly enough to ease the cash-flow pressure. For shareholders, the key tension is between funding additional capacity and preserving cash generation. For customers, data-centre expansion supports the computing services they use; the source results, however, don’t quantify how much of the planned spend will translate into added demand or revenue.

AWS growth outpaces advertising

Amazon Web Services was the clearest source of momentum. Revenue at the cloud unit rose 39 per cent to US$46 billion in the third quarter ended September. That exceeded the LSEG analyst estimate of a 38.2 per cent increase to US$45.61 billion and followed 37 per cent growth in the second quarter. The company said the cloud business grew at its fastest pace in nearly five years.

That acceleration helps explain why investors have increasingly focused on AWS as Amazon expands its computing infrastructure. The unit is growing faster than the company’s advertising business, though the results don’t show that cloud growth has offset the cash required for the wider investment programme.

Advertising sales rose 12 per cent year over year to US$19.6 billion, below the 18 per cent increase analysts had expected. It was the first time in seven quarters that advertising sales missed analyst estimates. Growth had been 26 per cent in the second quarter and 22 per cent in the third quarter of 2025, making the latest slowdown more visible.

Jassy said he was pleased with advertising performance and attributed some of the quarter’s softness to moving the Prime Day discount event into the second quarter. He expected advertising growth to return to “high teens” in the current quarter. That outlook will be a point to watch alongside the holiday sales range: the reported slowdown leaves the next period to show whether the event timing explains much of the deceleration.

Holiday demand remains a variable

Amazon’s fourth-quarter outlook comes as US retailers approach the holiday shopping season. The company’s range sits around the analyst average, but its lower end implies revenue below that benchmark. Higher petrol prices and rising living costs could constrain household spending, while an industry forecast cited in the source points to faster holiday sales growth than in 2025. The National Retail Federation predicted a 4.2 per cent increase in total US holiday-season sales earlier in October.

That broader forecast offers a different signal from Amazon’s own cautious range, but the two figures describe different things: one covers total US holiday sales, while the other is company revenue across Amazon’s businesses. Neither alone establishes how consumers will divide spending among retailers or how much of Amazon’s revenue will come from its cloud and advertising operations.

Amazon has also been expanding faster delivery services globally and reaching more rural areas in the US to attract shoppers. Those efforts may support its retail business, but the quarter’s reported figures do not quantify their contribution to sales. Investors will have to weigh that retail execution against the stronger AWS growth, slower advertising expansion and rising infrastructure costs.

Jassy defended the company’s direction, saying, “Our strategy is working and I expect it will for the foreseeable future.” He also said AWS could reach a trillion dollars in revenue in as little as five years, and argued that few retail businesses approach Amazon’s revenue scale. Those were statements of confidence, not reported results. The immediate evidence is more mixed: AWS accelerated, advertising fell short of estimates, and capital spending continued to pressure cash flow.

Amazon’s next results will help show whether the holiday quarter delivers revenue within its forecast range and whether the increased investment can coexist with healthier free cash flow. For now, the company’s growth story rests heavily on AWS, while the cost and timing of its capacity build remain central questions for investors, customers and employees.