Amazon shares fall as AI spending outpaces the fastest cloud computing growth seen in over five years

October 29 (Reuters) — Amazon.com Inc. (AMZN.O) reported significant cash burn for the third quarter on Thursday, triggering a sharp decline in its stock price. The company also signaled that capital expenditures will increase next year—on top of an already massive level of spending for 2026.
While Amazon’s cloud-computing cash cow, Amazon Web Services (AWS), continues to see accelerating growth, the company’s aggressive spending to capture demand for artificial intelligence has overshadowed the broader growth that investors typically crave—and there is more such spending on the horizon.

According to the London Stock Exchange Group (LSEG), the Seattle-based retailer expects its fourth-quarter revenue to fall between $240 billion and $247 billion—a range consistent with its previous forecast of $244.51 billion, though the midpoint of $243.5 billion is slightly lower.

Investors lost confidence in the company, driving its stock price down by as much as 7% in after-hours trading; during the regular session, the shares had already fallen 4.3% to close at $243.79. This decline mirrored a broader sell-off in tech stocks on Thursday, triggered in part by Intel (INTC.O) warning of weak PC-related revenue for the first half of next year—a forecast that sent its own shares plunging 23% in after-hours trading. Meanwhile, Alphabet (GOOGL.O) shares dropped 12% during the regular session, marking the company’s largest single-day decline on record.

The company reported that for the 12 months ending in September, its cash burn reached $42.4 billion—driven primarily by capital expenditures of $77.26 billion, a figure approximately $20 billion higher than anticipated, according to data compiled by the London Stock Exchange Group (LSEG). In the previous quarter, Amazon’s cash burn stood at $7.6 billion, whereas in the third quarter of last year, the company generated $14.8 billion in cash.

“Free cash flow is the most concerning part of this report,” said Dave Wagner, a portfolio manager at Aptus Capital Advisors. “While operations are generating a significant amount of cash, capital expenditures are completely consuming it.”

“This trend is very steep and quite negative—it’s the most worrying aspect of this report.”
Like its competitors, Amazon is investing heavily in the development of artificial intelligence software and infrastructure, with capital expenditures projected to reach $220 billion this year. While Amazon and Google parent company Alphabet have maintained their spending forecasts, Microsoft (MSFT.O) has not; on Wednesday, the company lowered its fiscal expenditure outlook from $175 billion to $170 billion.

CEO Andy Jassy told analysts on a conference call that he expects capital expenditures next year to be “significantly higher” than in 2026, though he did not provide further details.

Following the earnings release, Jassy sought to alleviate investor concerns. “Our strategy is working, and I expect it to continue doing so for the foreseeable future,” he stated. He also noted that AWS is on a trajectory to reach a trillion-dollar revenue scale within just five years, adding, “Our investments in AWS capabilities and infrastructure are paying off.” Furthermore, he remarked, “To my knowledge, there is no other retailer today that operates at a revenue scale comparable to Amazon’s.”

However, Jesse Cohen, a senior analyst at Investing.com, pointed to Amazon’s free cash flow and “weak forward guidance” as factors behind the decline in its stock price, describing the company’s third-quarter earnings as a “double disappointment.”

Cloud Business Drives Growth
According to data compiled by the London Stock Exchange Group (LSEG), revenue for Amazon Web Services (AWS) grew by 39% to $46 billion in the third quarter ending in September—surpassing analysts’ expectations of 38.2% growth, or $45.61 billion. In the second quarter, AWS had recorded a 37% increase in revenue.

Advertising sales were once again disappointing, growing only 12% year-over-year to $19.6 billion—falling short of the 18% growth anticipated by the London Stock Exchange Group (LSEG) and marking the first time in seven quarters that the company has missed analysts’ expectations. This growth rate is significantly lower than the 26% recorded in the second quarter or the 22% seen in the third quarter of 2025.

Nevertheless, Jassy stated that he was “pleased” with the advertising performance, noting that the shift of the Prime Day promotional event into the second quarter had an impact on the overall advertising results for this period. He projected that advertising sales growth would return to a rate closer to 10% in the current quarter.

He dismissed concerns that AI-powered shopping agents—which can automatically complete purchases on behalf of users—might negatively affect advertising revenue. During the quarter, the company blocked “Muse” (an AI shopping agent) from accessing its website to make purchases for customers.

A pessimistic outlook for the fourth quarter suggests that U.S. retailers could face challenges during the holiday season, as consumers tighten their shopping budgets in response to rising gasoline prices and an increased cost of living.

However, recent industry forecasts point to growth in holiday sales compared to last year. Earlier this month, the National Retail Federation predicted that total U.S. holiday sales would increase by 4.2%.

While retail sales account for the bulk of Amazon’s revenue, investor focus has shifted sharply toward its cloud computing division—Amazon Web Services (AWS)—in recent years, as the tech giant invests heavily in building data centers and competing in the global race for artificial intelligence.

Amazon’s cloud computing unit has achieved its fastest growth rate in nearly five years.

On the e-commerce front, Amazon has been rolling out faster delivery services globally and expanding into more rural areas of the United States to attract a broader base of shoppers.