Amazon earnings report: AI boosts AWS to its fastest growth in three years, cash flow under pressure

Amazon (Amazon) released its 2026 first-quarter earnings report. Overall revenue and operating profit both exceeded market expectations, demonstrating a solid operational foundation. Among them, its cloud computing segment (AWS), boosted by demand for artificial intelligence (AI) infrastructure, recorded the fastest revenue growth in more than three years. However, to meet the massive computing power needs of AI startups such as Anthropic and OpenAI, Amazon’s capital expenditures expanded significantly, which in turn led to a notable decline in free cash flow. While the large-scale investment in data centers reinforces its long-term competitiveness in the AI space, it has also raised market concerns about short-term financial liquidity.

AI drives AWS’s fastest growth in three years

Amazon’s first-quarter revenue reached $181.5 billion, up 17% year over year. Within that, the cloud services segment (AWS) performed particularly strongly. AWS quarterly revenue reached $37.6 billion, up 28% year over year, marking the fastest growth pace in more than three years. Wall Street previously expected AWS sales to grow 26%. This remarkable growth is mainly attributable to Amazon’s strategic investments in leading AI startups. These collaborations ensure that relevant labs will invest more than $100 billion into AWS in the future. This move effectively eased market concerns about slowing AWS growth, while also making up for Amazon’s gap in AI products on the consumer side—solidifying its strategic positioning as an infrastructure provider.

Capital expenditure expansion weighs on cash flow

Despite strong revenue, Amazon’s heavy capital expenditures to support AI development became a focal point of the earnings report. Over the past 12 months through the end of March, its equipment spending totaled $151.0 billion, an increase of $57.9 billion year over year, with the aim of capturing an increasing share of business from leading AI startups Anthropic and OpenAI. These large investments used to build AI data centers directly compressed free cash flow (Free Cash Flow)—the remainder after operating cash minus capital expenditures. By the end of the first quarter, its free cash flow over the past 12 months fell to $1.2 billion, far below $25.9 billion in the same period last year, reflecting the financial costs of the expansion.

E-commerce core business and advertising business provide steady support

Outside of its cloud business, traditional e-commerce and advertising still provide solid support. First-quarter online sales totaled $64.3 billion, up 12% year over year and above market expectations. Advertising revenue, which has a high gross margin, also grew 24% to $17.2 billion, helping improve overall profitability. Notably, during the first quarter, the company closed some Fresh supermarkets and Go unmanned convenience stores. This shows management is actively reorganizing resources—reducing losses in physical retail—and allocating capital more toward digital and cloud infrastructure with high growth potential.

Market reaction and analysis of broader economic impact

After the earnings report was released, Amazon’s stock initially fell after hours and then rose 3%, but it has remained steady with gains of 14% so far this year. Investors’ reaction reflects both recognition of AWS’s recovery and a wait-and-see stance toward the sharp increase in near-term capital expenditures. From a macroeconomic perspective, large investments will drive demand in upstream supply chains such as servers and cooling systems. However, in the current broader economic environment, how companies balance massive forward-looking investment with healthy financial liquidity will be a common challenge facing the technology industry.

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