Key Points

• Amazon raises its capital expenditure for 2026 to $220 billion
• AWS Revenue grows by 37%, with backlogged orders reaching $496 billion
• Against the backdrop of infrastructure expansion, free cash flow has turned negative.

Amazon is investing at an unprecedented pace to expand its artificial intelligence infrastructure; despite the latest rolling annual free cash flow figure having dropped below zero, the company expects capital expenditures to still reach $220 billion in 2026.

Amid the exceptionally strong demand for Amazon Web Services ( AWS ), this surge in spending continues to progress. AWS reported a 37% increase in revenue for the second quarter, with backlogged contract orders reaching $496 billion. At the same time, Amazon is facing challenges such as power shortages, limited equipment, and construction issues, and is striving to deliver computing power as quickly as possible.

A survey on October 19th, as indicated by Business Insider, stated that the company's ambitious expansion plans meant that financial commitments had already increased significantly before any new facilities began to generate revenue.

Amazon invests $220 billion AI to drive negative cash flow turnover

In July, Amazon raised its annual cash capital expenditure forecast from approximately $200 billion to $220 billion, partly due to rising costs of memory chips and an accelerated demand for AI computing.

According to its second-quarter financial report, operating cash flow has increased by 33% over the past 12 months, reaching $161.4 billion.

However, free cash flow decreased from a positive $18.2 billion a year ago to a negative $7.6 billion, mainly reflecting a year-over-year increase of $66.1 billion in net property and equipment purchases.

This $220 billion budget covers a broader range of corporate infrastructure and is not limited to the AI project; moreover, this is a planned expenditure, not an amount that has already been actually invested.

Amazon's spending situation reflects the same challenge faced by the broader AI data center boom: large-scale investment must be made first before the facilities can begin to provide the contracted computing services.

AWS Revenue grew by 37%, but electricity and hardware costs increased.

AWS achieved revenue of $42.2 billion in the second quarter, marking the fastest growth rate in 18 quarters, with operating profits of $16.6 billion.

Its backlogged orders have expanded to approximately $496 billion, representing future contracted business, rather than confirmed revenue.

Amazon CEO Andy Jassy ( Andy Jassy ) stated that although the company is advancing a massive construction plan, it is still expected that it will not be able to meet all demands until 2027.

According to Business Insider, executives in charge of infrastructure at AWS are managing risks related to power access, labor availability, and the delivery of server equipment, which includes expensive NVIDIA hardware.

These challenges are similar to the power grid delays faced by other AI infrastructure developers, however, compared to smaller operators, Amazon has stronger financial resources.

Rising hardware costs also put pressure on the semiconductor supply chain. Recent sell-offs in chip stocks indicate that even though demand remains strong, concerns about the return on investment in AI are affecting NVIDIA, AMD, and Micron.

Wall Street questions when the expenditures of AI will yield results

As the infrastructure investment in the tech industry comes under stricter scrutiny, Amazon's deteriorating cash flow has drawn attention.

CoreWeave recently experienced a 22% decline in its stock price within a single week, due to investors questioning its borrowing needs; Meta also faces its own challenge of $145 billion in expenditures.

The financial conditions of these companies vary, but they all face pressure and need to prove that infrastructure investments can bring lasting returns.

AWS Chief Financial Officer John Felton ( John Felton ) stated to Axios that the company's AI expenditures are still sustainable, and pointed out strong customer demand as well as an backlog of orders approaching $5 trillion.

Amazon, on the other hand, stated that infrastructure costs often emerge several years before the revenue they generate, therefore a negative free cash flow is merely a temporary result of rapid expansion, and not evidence of weak customer demand.