Amazon's free cash flow turns negative as AI infrastructure spending hits record levels despite strong AWS growth

Amazon's second-quarter 2026 earnings show strong growth, with total revenue rising 20% to $200.6 billion and AWS revenue surging 37% to $42.2 billion. However, massive investments in AI infrastructure drove property and equipment spending to $169 billion over the past 12 months. This record capital expenditure resulted in a negative free cash flow of $7.6 billion, Amazon's first negative cash flow since 2023, despite a $53.4 billion pre-tax gain from its Anthropic investment.

AWS revenue growth acceleration

• ▪Amazon CEO Andy Jassy stated that the company's artificial intelligence and chips businesses each surpassed annualized run rates of $25 billion in the second quarter of 2026.
• ▪Amazon Web Services revenue reached $42.2 billion in the second quarter of 2026, representing a $169 billion annualized run rate.
• ▪Amazon Web Services revenue grew 37% in the second quarter of 2026, marking its fastest growth rate since the end of 2021.

AWS operating margin expansion

• ▪Amazon Web Services operating margin rose to 39.4% in the second quarter of 2026, up from 32.9% in the same period of 2025.
• ▪Amazon Web Services operating income increased 64% to $16.6 billion in the second quarter of 2026.

AI infrastructure capital expenditure

• ▪Amazon attributed its $169 billion in property and equipment spending over the 12 months preceding July 30, 2026, primarily to investments in artificial intelligence infrastructure.
• ▪Amazon spent a net $169 billion on property and equipment over the 12 months preceding July 30, 2026, representing an increase of $66.1 billion year-over-year.

Negative free cash flow

• ▪Amazon recorded positive free cash flow of $18.2 billion for the 12 months preceding July 30, 2025.
• ▪Amazon's operations generated $161.4 billion over the 12 months preceding July 30, 2026, which was offset by $169 billion in capital expenditures.
• ▪Amazon's free cash flow for the 12 months preceding July 30, 2026, turned negative for the first time since 2023, resulting in a $7.6 billion shortfall.

Amazon Q2 2026 earnings

• ▪Amazon shares increased by more than 8% in after-hours trading following the release of its second-quarter 2026 earnings report on July 30, 2026.
• ▪Amazon reported operating income of $27.5 billion for the second quarter of 2026, representing a 43% increase year-over-year.
• ▪Amazon reported total revenue of $200.6 billion for the second quarter of 2026, a 20% increase year-over-year that beat Wall Street expectations of $196.4 billion.

Anthropic investment gains

• ▪Excluding pre-tax gains from its Anthropic investment, Amazon's second-quarter 2026 earnings per share would have been approximately $1.95, exceeding analyst expectations of $1.82.
• ▪Amazon reported second-quarter 2026 profits of $62.6 billion, or $5.75 per share, which included $53.4 billion in pre-tax gains primarily from its investment in Anthropic.

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