Amazon (AMZN) Q3 2026 Earnings: AWS Grows 39% as Free Cash Flow Falls to -$42.4B

Amazon's Q3 2026 earnings, released on October 29, 2026 in an 8-K earnings release and on the earnings call, showed AWS and North America retail profits ahead of prior baselines, while advertising growth and free cash flow fell well short of them [1][2]. Four questions framed the quarter: AWS growth and margin, North America retail margin, advertising growth, and the gap between capital spending and operating cash flow. The first two were confirmed. Advertising grew only 12%, and trailing twelve-month free cash flow fell from -$7.6 billion to -$42.4 billion [1][4]. Taken together, Amazon is converting its investment into AWS revenue and profit faster than before, but the cash and debt cost is also larger and arriving sooner.

Amazon runs an e-commerce marketplace and the AWS cloud business, serving consumers, third-party sellers, developers, enterprises and advertisers [3]. Retail profit comes mainly from advertising, seller services and membership fees. AWS rents out compute, storage and AI services, and it contributed $17.8 billion of the quarter's $28.1 billion consolidated operating income [1].

Free cash flow gap widened by about $35 billion in one quarter

Free cash flow fell much faster than in the first half of the year. Trailing twelve-month free cash flow through September was -$42.357 billion, down $34.753 billion in a single quarter, compared with declines of roughly $9-10 billion per quarter in the first half [1][4]. The main cause was $75.9 billion of cash capital expenditures in Q3, and the company said the increase primarily reflects investment in artificial intelligence [1][2]. Trailing operating cash flow growth slowed from 33% to 29%, well below the 82% growth in net capital spending [1].

Debt and cash covered the gap. Long-term debt rose from $65.6 billion at the end of 2025 to $173.1 billion, Q3 interest expense was $1.691 billion versus $538 million a year earlier, and cash and cash equivalents fell to $55.8 billion [1]. Amazon kept its 2026 cash capex plan at approximately $220 billion and said it expects to spend meaningfully more in 2027 [1][2]. Based on about $172.2 billion of net capex in the first nine months, the full-year plan implies about $48 billion in Q4, but the company did not say whether the two measures use the same definition.

AWS accelerated to 39% without a depreciation hit to margin

AWS growth accelerated for the sixth consecutive quarter. Q3 AWS revenue was $45.984 billion, up 39.3% year over year versus 37% in Q2, with a 38.7% operating margin [1][2]. AWS segment operating expenses grew 30.8%, slower than revenue, so depreciation did not erode the margin [1]. Management said backlog rose to $578 billion from about $496 billion at the end of June [2].

This confirmation has limits. Segment depreciation has not yet been disclosed, and the release did not say whether AWS profit included any energy derivative gains [1]. Management expects AWS to grow more than 40% in each of 2027 and 2028; that is a target, not a result [2].

Advertising growth slowed to 12%, with Q4 guided to the high teens

Advertising growth fell well below its pace of the past year. Q3 advertising revenue was $19.637 billion, up 12% excluding foreign exchange, after 22%, 22%, 22% and 26% in the prior four quarters [1]. Management said moving Prime Day into Q2 cut advertising growth by about 850 basis points, and that NBA timing and the lapping of a search engine marketing change also weighed on growth, without quantifying those two items [2].

Timing does not explain the whole gap. Adding back 850 basis points gives roughly 20.5%, still below 22%, and the company guided Q4 advertising growth only to the high teens [1]. Third-party seller services grew 10% and subscription services 12% [1]. Amazon does not disclose advertising profit, so the effect of the slowdown on retail profit cannot be isolated.

North America held a 7.7% margin in a quarter without Prime Day

North America's margin held even as revenue growth slowed. North America revenue grew 6% in Q3, and the company said the Prime Day shift reduced consolidated growth by about 400 basis points [1]. The North America operating margin was 7.7%, compared with 4.5% a year earlier, or about 6.9% after adding back the $2.5 billion FTC settlement [1][5]. Worldwide shipping costs rose 11%, below 12% unit growth, and rose only 8% excluding fuel and line-haul inflation [1][2]. Fuel costs are higher in Q4, most Amazon Leo costs will continue to be expensed, and a $1.5 billion+ pay investment raises US operations starting pay; how these costs split across segments has not been disclosed [1][2].

Conclusion

The quarter confirmed that AWS investment is turning into revenue and profit, and it also showed the cash cost accelerating. Consolidated operating income was $28.076 billion, above the company's prior guidance of $22.5-26.5 billion, and revenue came in at the top of guidance [1][6]. With capex set to rise again in 2027, the cash gap is unlikely to narrow soon. The next quarter tests whether AWS can grow close to 40% on a higher base, whether advertising delivers high-teens growth, whether the holiday-quarter North America margin can hold at or above last year's 9.0%, and whether free cash flow stops falling [1].

Sources

[1] AMZN 8-K filed 2026-10-29 · Q3 2026 earnings release (Ex. 99.1), 2026-10-29, Amazon.com 8-K earnings release (Exhibit 99.1), https://www.sec.gov/Archives/edgar/data/1018724/000101872426000038/amzn-20260930xex991.htm [2] AMZN Q3 2026 earnings call 2026-10-29, 2026-10-29, Amazon Q3 2026 earnings call, https://ir.aboutamazon.com/quarterly-results/ [3] AMZN 10-K filed 2026-02-06 · business overview and customer sets, 2026-02-06, Amazon.com 10-K annual report, https://www.sec.gov/Archives/edgar/data/1018724/000101872426000004/amzn-20251231.htm [4] AMZN 8-K filed 2026-07-30 · supplemental TTM cash flow and results, 2026-07-30, Amazon.com 8-K earnings release (Exhibit 99.1), https://www.sec.gov/Archives/edgar/data/1018724/000101872426000024/amzn-20260630xex991.htm [5] AMZN 10-K filed 2026-02-06 · 2025 operating income and Q3 2025 charges, 2026-02-06, Amazon.com 10-K annual report, https://www.sec.gov/Archives/edgar/data/1018724/000101872426000004/amzn-20251231.htm [6] AMZN 8-K filed 2026-07-30 · Q3 2026 guidance, 2026-07-30, Amazon.com 8-K earnings release (Exhibit 99.1), https://www.sec.gov/Archives/edgar/data/1018724/000101872426000024/amzn-20260630xex991.htm