Amazon Just Burned $42 Billion in Cash Chasing AI Growth. Is Wall Street Ignoring the Risk?

Amazon (NASDAQ:AMZN) reported a significant increase in its capital expenditures during the third quarter, spending $77.3 billion on property and equipment. This figure is over double the $35.1 billion spent in the same period last year, as indicated in the company's latest earnings report released today.

This substantial investment has contributed to strong growth for Amazon Web Services (AWS), the cloud computing division of the company, which achieved a 39% year-over-year growth rate, marking its best performance in nearly five years. However, investors are currently assessing the implications of Amazon's extensive spending on artificial intelligence and whether it poses a risk to the company's financial stability.

In terms of overall financial performance, Amazon's sales rose 12% to reach $201.9 billion. The company reported earnings per share (EPS) of $1.89, which fell short of the $1.95 per share recorded a year earlier and did not meet Wall Street's expectations. Amazon attributed part of this earnings decline to the timing of its major "Prime Day" sales event, which was moved out of the third quarter and resulted in an estimated 4 percentage points of potential revenue growth being lost. Additionally, the EPS comparison was impacted by a strong performance in the previous year, which included a $9.5 billion pretax gain from its investment in Anthropic, the creator of the AI model Claude.

A more pressing concern for analysts is the company's cash flow situation. Over the past year, Amazon has reported a free cash flow (FCF) loss of $42.4 billion, a sharp decline from a $14.8 billion gain the previous year. Looking ahead, the company anticipates spending around $220 billion on capital expenditures by 2026, signaling continued outflow of cash. This situation is exacerbated by the fact that Amazon has been increasing its borrowing significantly.

During the most recent quarter, Amazon raised $48.1 billion in long-term debt, resulting in an increase in total long-term debt from $65.6 billion at the end of 2025 to $173.1 billion. This rise in debt highlights concerns about the company's financial leverage as it continues to invest heavily.

Despite these challenges, AWS has emerged as a standout performer for Amazon, generating $46.0 billion in revenue and contributing $17.8 billion in operating profit, which accounts for 63% of the company's total operating income. CEO Andy Jassy has expressed optimism about AWS's future growth, predicting it will exceed 40% growth in both 2027 and 2028, as the division's capacity is reportedly "largely sold out" for the upcoming year.

Amazon is not the only tech giant investing heavily to keep pace with cloud demand. Microsoft (NASDAQ:MSFT) and Alphabet (NASDAQ:GOOG) (NASDAQ:GOOGL) also reported strong growth in their cloud segments, although they too are grappling with substantial expenditures. Notably, Microsoft has managed to maintain positive free cash flow, while Alphabet has experienced a shift from a $24.5 billion inflow to a $9.1 billion outflow in free cash flow compared to the previous year.