Amazon to Spend More on AI in 2027 as AWS Growth Hits 39%
Amazon's cloud unit grew at its fastest pace in nearly five years, but a soft holiday forecast and heavy AI spending weighed on the results.
Amazon said Thursday that its cloud computing business grew at its fastest pace in nearly five years in the third quarter, and that it plans to spend even more on artificial intelligence infrastructure next year than the roughly $220 billion it expects to spend in 2026. The company also gave a holiday-quarter sales forecast that fell slightly short of Wall Street’s expectations, and its shares dropped in after-hours trading.
Andy Jassy, Amazon’s president and chief executive, told investors that capital spending in 2027 will be “meaningfully more” than this year’s level, according to reports on the company’s earnings call. The comment comes as the cost of building data centers has pushed the company’s free cash flow deep into negative territory.
What happened
Amazon reported net sales of $201.94 billion for the three months ended Sept. 30, up from $180.17 billion a year earlier, the Associated Press reported. That was just below the $202.2 billion analysts had expected, according to FactSet figures cited by the AP.
Net income was $20.69 billion, or $1.89 per share, compared with $21.19 billion, or $1.95 per share, in the same quarter last year. Analysts had forecast earnings of about $1.97 per share, the AP said.
Operating profit was stronger than expected. The financial news site investingLive reported that operating income came in at about $28 billion, roughly $2 billion above the consensus estimate, with an operating margin of 13.9% against the 12.9% analysts had expected.
Key figures from the quarter:
- Amazon Web Services (AWS): revenue rose about 39% to roughly $46 billion, up from 37% growth in the second quarter.
- Advertising: sales grew 12% to $19.6 billion, which Reuters said came in below LSEG estimates, according to a summary by the investing site Finimize.
- North America: net sales of about $113 billion, slightly below forecasts, according to investingLive.
Cloud business carries the quarter
AWS, the company’s cloud unit that rents computing power and storage to businesses, governments and AI developers, was the clear bright spot. The AP said the unit’s 39.3% sales growth was its fastest rate in nearly five years. Reports of the earnings call said the revenue figure topped analysts’ estimate of about $45.6 billion.
Jassy was upbeat about the unit’s prospects. According to a market news summary of the call, he said AWS could reach $1 trillion in annual revenue within about five years. He also forecast that advertising growth would return to the “high teens” in the current quarter.
Earlier this year Jassy said that even at the $220 billion spending level, Amazon would not have enough capacity to meet all of its customer demand, the AP reported. The company first planned to spend $200 billion in 2026, announced in February, and raised that figure to $220 billion in July. Jassy blamed the increase mainly on higher memory chip prices. The spending covers data centers as well as robots, semiconductors and satellites, the AP said. Amazon spent $128 billion last year.
Why it matters
Amazon is one of several technology giants pouring record sums into AI infrastructure, and investors are watching closely to see whether that spending pays off. The bill is already showing up in the company’s cash position. Reuters reported, according to Finimize, that Amazon’s free cash flow over the trailing 12 months was a negative $42.4 billion. That means the company spent more cash than it brought in over that period.
Reports differed on how much Amazon spent on capital projects. One market news summary said capital expenditures reached $77.26 billion in the September quarter, while Finimize described the same figure as covering the past year.
Amazon is not alone in feeling the strain. The AP noted that Alphabet, the parent company of Google, also burned through cash by its free cash flow measure after its spending on property and equipment topped $51 billion.
What comes next
For the fourth quarter, which includes the busy holiday shopping season, Amazon forecast net sales of $240 billion to $247 billion. That would be an increase of 12% to 16% from a year earlier. The midpoint of the range fell slightly below the roughly $244 billion to $245 billion analysts had expected, according to the AP and investingLive.
The company projected fourth-quarter operating income of $28.5 billion to $33.5 billion. investingLive said the midpoint, about $31 billion, was roughly $2 billion below consensus, although the top of the range was slightly above it.
To handle holiday demand, Amazon plans to hire 300,000 seasonal workers in the United States, up from 250,000 last year, the AP reported.
Reports differed on how far the shares fell in extended trading. The AP put the decline at more than 6%, and other market reports said it was larger. Amazon has not yet said exactly how much it plans to spend in 2027.
