Amazon faces AI cost pressure

Amazon will release its third-quarter financial results after the market close on Thursday, with investors closely watching the impact of its heavy artificial intelligence investments on the bottom line.

Consensus estimates from LSEG project adjusted earnings per share of $1.96 and total revenue of $202.31 billion. StreetAccount expects the cloud division, Amazon Web Services, to generate $45.48 billion in sales, while the advertising segment is forecast to bring in $20.82 billion.

Analysts anticipate another quarter of acceleration for AWS, with predicted sales growth of 38 percent. This would exceed the 37 percent growth recorded in the previous quarter and mark the fifth consecutive period of increased revenue velocity for the cloud unit.

CEO Andy Jassy indicated that demand for computing power remains high. Speaking on an Andreessen Horowitz podcast last week, he stated that capacity for the next year is "largely sold out" and that a "good chunk of '28 is sold out" as well.

The company raised its 2026 capital expenditure forecast to $220 billion in the prior quarter, up from an earlier estimate of $200 billion. Surveyed analysts expect this spending to exceed $280 billion in 2027. These figures reflect the cost of bringing new data centers online to support AI workloads.

The aggressive buildout has strained liquidity. Amazon reported negative free cash flow of $7.6 billion for the trailing twelve months in July, a reversal from the positive $18.2 billion reported one year prior. FactSet estimates suggest the current quarter will show an outflow of $9.9 billion.

This cash flow pressure mirrors trends among other technology giants. Alphabet and Meta recently reported negative free cash flow in their latest earnings. Microsoft, which reported on Wednesday, saw free cash flow drop 27 percent in its fiscal first quarter, though it remained in positive territory.

Amazon has reduced its workforce as it redirects resources toward technology. The company has cut more than 57,000 jobs since 2022, representing roughly 16 percent of its corporate staff. On Wednesday, it confirmed that fewer than 250 employees in the device software and services team were let go to "operate more efficiently."

Amazon is also tightening control over who accesses its shopping platform. The company blocked Meta's Muse AI agent from operating on its site, citing a lack of advance notice or agreement. This follows previous blocks of agents from Perplexity and others, which Amazon sued last year for allegedly concealing their bots.

Internally, Amazon is pushing its own AI tools to retain customer engagement. The company rebranded its Rufus chatbot as Alexa for Shopping in May. More than 400 million shoppers have used the assistant, and the number of users employing its agentic features has grown more than eight times since the start of the year. Deutsche Bank analysts noted that Amazon's proprietary purchase data positions it well to develop its own agentic shopping offering while determining how to monetize third-party agents.