Amazon just cut $44.2 billion in capital spending in just one quarter. That’s not a typo. This number represents a 77% increase compared to the $25 billion the company spent in the same period last year, and shows that Amazon’s AI spending is accelerating rather than slowing.
The numbers behind Amazon’s AI bet
The quarterly numbers are eye-catching on their own, but zoom out and the picture becomes even more dramatic. Amazon’s trailing 12-month capital spending now stands at $147.3 billion, a 67% increase from $88 billion in the previous 12 months.
Operating cash flow paints a healthier picture, increasing 30% to $148.5 billion on a trailing 12-month basis. Free cash flow, the money left over after all expenses, ballooned to just $1.2 billion. With operating cash flow of $148.5 billion and free cash flow of $1.2 billion, nearly every dollar that comes in goes out immediately.
Why AWS is more important than ever
Amazon Web Services, the company’s cloud computing division, met revenue expectations for the quarter. AWS is the engine that justifies all of this spending, and so far, it’s paying off.
Analysts point to AWS’ performance and optimistic forward guidance as the main reasons why the market doesn’t blame Amazon for burning through nearly all of its free cash flow. This reason has helped reduce bearish sentiment towards Amazon stock considerably.
What this means for investors and the broader market
The investment theory here is simple, but it comes with real risks. Amazon is betting that its AI infrastructure will be the foundation of its next decade of growth, primarily through AWS. As enterprise demand for AI computing continues to soar, $147.3 billion in capital spending will start to look more like a moat than a money pit.
However, free cash flow compression cannot be ignored. The $1.2 billion number on a trailing 12-month basis quickly becomes difficult to calculate due to slower AWS revenue growth, slower AI monetization, or macroeconomic headwinds forcing enterprise clients to reduce their cloud budgets.
