What Could Go Wrong With Amazon Stock?

For questions about this article or underlying research, email help@trefis.com.

Amazon.com (AMZN) earned $135 billion in net income over the four quarters ended June 2026, well above its $93.7 billion of operating income. Yet its free cash flow, the cash left after paying for new buildings and equipment, was a negative $11.6 billion over the same twelve months. That gap is the number a holder should watch, because a company spending more cash than it brings in has to cover the difference somewhere. So where is all that cash going?

Amazon Is Spending Its Cash On AI Data Centers

Most of it is funding new capacity for AWS, Amazon’s cloud business, and for generative AI. During the June quarter alone, Amazon spent $53.1 billion in cash on capital projects, compared with the $45.4 billion in cash its operations brought in. Management said this spending supports strong customer demand. Even at its planned spending for the year, management said Amazon will not have enough capacity to meet all the demand it sees in 2026. Management believes the same will be true in 2027.

The bill is also growing. Management now expects about $220 billion of cash capital spending in 2026, up from its earlier estimate of about $200 billion, because memory costs more.

How Fast Has Amazon’s Free Cash Flow Fallen?

Amazon’s free cash flow has fallen in each of the last two twelve-month periods. The figure stood at $48.3 billion in the twelve months from July 2023 to June 2024, dropped to $13.5 billion from July 2024 to June 2025, and then turned negative in the latest twelve months.

Debt has climbed over the same stretch. Amazon’s total debt reached $223 billion at the end of June 2026, up from $134 billion a year earlier. Management also said on its July 30, 2026 call that the company has issued debt in 2026.

The wait for a return is long, too. Management said Amazon begins spending data center money two years before it can put servers into the buildings and start earning from them. So some of the money Amazon spends today will not earn anything for a while.

What Are Amazon Investors Paying For Now?

Investors pay 19.9 times Amazon’s earnings, against 23.0 for the S&P 500. That multiple looks low partly because Amazon’s net income, lifted by items outside its main operations, sits well above its operating income. Measured against operating income, investors pay about 28.8 times.

The best case against the worry is that much of the demand is already signed. Management said Amazon’s backlog stood at $496 billion on the July call, growing at a triple-digit rate from a year earlier. AWS revenue grew 36.7% from a year earlier in the June quarter. Management also said servers and networking equipment take a little less than three years to break even, while most of its AI capacity is contracted for at least five-year terms. Because Amazon buys servers only a few months before putting them to use, it will not spend that money if the demand is not there, management added.

So the cash drain is a real cost for holders today, but it is not a sign the business is weakening, as long as those contracts turn into sales on schedule. When Amazon reports third-quarter results, expected in October 2026, its capital spending, set against the cash its operations bring in, is the figure to watch.

Is Too Much Of Your Wealth Riding On One Stock?

When one position grows into a large part of your wealth, a sharp fall can hurt your whole plan, and selling to spread the money out can bring a large tax bill. Our partner advisory firm offers a free strategy review of ways to protect a concentrated position and unwind it with less tax.

Request A Free Strategy Review

Spot an error or want more like this? Tell us in 10 seconds.