Amazon Q3 2026: AWS Lifts Operating Income 61% as Free Cash Flow Turns Negative

Amazon's third quarter of 2026 paired a 61% jump in operating income with a deeply negative quarter of free cash flow. Operating income reached $28.1 billion, led by AWS growing 39% at a 38.7% segment margin. In the same three months Amazon spent $77.3 billion on property and equipment, turning quarterly free cash flow to about negative $33.5 billion, and it borrowed $48.1 billion of new long-term debt. Meanwhile the quarter's biggest gain, about $36 billion on available-for-sale securities including its Anthropic convertible notes, never touched net income, which slipped 2%.

AWS carried a 61% jump in operating income​

Net sales rose 12% to $201,944 million, held back by calendar: Prime Day fell in the second quarter in most large countries this year, and Amazon says growth would have been about 400 basis points higher without the shift (earnings release). Operating income rose to $28,076 million from $17,422 million, and operating margin widened to 13.9% from 9.7% by our computation.

AWS did most of that work. Its sales rose 39% to $45,984 million, and its operating income rose to $17,773 million from $11,434 million, a 38.7% margin against 34.6%. That is 63% of company operating income from 23% of sales. The retail segments improved too: North America's operating income rose to $8,723 million from $4,789 million on 6% sales growth, a 7.7% margin against 4.5%. CEO Andy Jassy put AWS at a "$184 billion revenue run rate" with "projected revenue growth rates of over 40% both in 2027 and in 2028."

The quarter's expense treemap shows Amazon's own split: $94,573 million cost of sales, $29,997 million fulfillment, $34,814 million technology and infrastructure, $14,350 million sales, marketing and G&A. Technology and infrastructure, where data-center costs land, grew 20%, faster than sales but slower than AWS revenue. The ledger keeps the company's fulfillment line instead of folding it into cost of revenue, so the treemap reads the way Amazon reports it.

Net income fell because last year had an Anthropic gain, and this year's went elsewhere​

Net income slipped to $20,685 million from $21,187 million, and diluted EPS to $1.89 from $1.95. The release attributes the decline "primarily" to "pre-tax gains of $9.5 billion in third quarter 2025 included in non-operating income (expense) from our investments in Anthropic." This quarter, non-operating items netted to a $1,207 million expense, with interest expense rising to $1,691 million from $538 million as the new debt came on.

The Anthropic story did not stop; it changed lines. Amazon's statement of comprehensive income records a $35,974 million after-tax unrealized gain on available-for-sale debt securities in the quarter, and the 10-Q explains that Amazon's Anthropic convertible notes are classified as available-for-sale, "with unrealized gains and losses included in 'Accumulated other comprehensive income (loss).'" Comprehensive income was $56,676 million, almost three times net income. The equity stake Amazon converted into preferred stock earlier moves through net income when it is remarked; the notes move through equity, and only reach the income statement when they convert.

The ledger shows how large that side channel has become:

Equity is a credit, so a growing gain plots as a falling line. Accumulated other comprehensive income was a small loss of $1,376 million at the end of 2021 and stayed within a few billion of zero through 2024. It reached a $28,230 million gain at the end of 2025, $66,287 million in June and $102,278 million on September 30. A reader who tracks only net income misses a $36 billion quarter of gains; a reader who adds it in has to remember none of it is cash.

Capex passed operating cash flow by $35 billion, and debt filled the gap​

Operating cash flow rose to $42,422 million from $35,525 million. Purchases of property and equipment more than doubled to $77,259 million from $35,095 million. On Amazon's definition, operating cash flow minus those purchases net of $1,381 million of proceeds and incentives, free cash flow was negative $33,456 million for the quarter, against positive $1,297 million a year ago, by our computation. For the trailing twelve months the release reports a free-cash-flow "outflow of $42.4 billion," driven by a $94.8 billion year-over-year increase in net purchases of property and equipment, which it says "primarily reflects investments in artificial intelligence."

This is why profit and cash can diverge in a growing business. A server bought today is a cash outflow today, but it reaches the income statement only as depreciation over its useful life. Amazon's depreciation and amortization rose 25% to $20,949 million, far less than the 120% rise in purchases. Our depreciation guide shows the same mechanism at small-business scale.

The balance sheet records how the gap was financed:

A liability is a credit, so rising debt plots downward. Long-term debt was $48,744 million at the end of 2021 and $52,623 million at the end of 2024. It ended 2025 at $65,648 million, reached $128,894 million in June, and stood at $173,125 million on September 30 after $48,102 million of new long-term debt in the quarter. Net property and equipment rose from $357,025 million to $508,862 million over the nine months, $151,837 million in three quarters. The release reports the borrowing; the ledger puts it beside a balance sheet whose long-term debt stayed between $48 billion and $68 billion from 2021 through 2025.

What to watch in the fourth quarter​

• The capex pace. Amazon still expects about $220 billion of 2026 cash capital expenditures. Purchases through September were $175,670 million less $3,482 million of proceeds, which leaves roughly $48 billion for the fourth quarter by our computation, well below Q3's pace. A higher number would mean the guide moved.
• AWS margin as capacity lands. The 38.7% segment margin is the one to watch as depreciation on this year's buildout starts to flow through technology and infrastructure.
• Operating income guidance. Amazon guided fourth-quarter operating income to $28.5 billion to $33.5 billion against $25.0 billion a year earlier, on net sales of $240.0 billion to $247.0 billion.
• Where the Anthropic gains land. Gains on the notes sit in equity until they convert; a conversion moves the accumulated amount into "Other income (expense), net," which is how a single quarter can show a large, non-cash jump in net income.