Amazon’s $42.4 Billion Cash Burn Delivers Final Blow In a Rough Week For AI

Amazon just reported its third-quarter earnings, which show it’s now the latest AI hyperscaler to disappoint the market with below-expectations revenue and a spiraling cash burn. The company’s free cash flow sank to a negative $42.4 billion, a huge drop compared to the $7.5 billion cash burn reported in the previous quarter, and an even greater drop compared to the $14.8 billion that was flowing into the company at the same time last year. The cash drop was driven primarily by a $94.8 billion jump in property and equipment purchases related to the company’s investments in artificial intelligence, Amazon said. The company expects to spend $220 billion this year, again driven in large part by AI investments. But while Amazon hemorrhages cash for AI, its revenue also failed to match up to analyst expectations. The tech giant reported $201.9 billion in revenue, up 12% since last year. That result was below analyst estimates, the Wall Street Journal reported. The results also showed subpar revenue for its advertising and retail segments, a sign for many investors of a stumble in Amazon’s core business. Amazon’s chief financial officer Brian Olsavsky noted that Prime Day shifted dates this year, so the sales mostly occurred during the company’s second fiscal quarter. Amazon brass argued that last year it was during the third quarter, which slightly impacted the year-over-year growth. Amazon was the last hyperscaler to report in this round of tech earnings. So far, of the four hyperscalers, only Microsoft has reported positive free cash flow. Incidentally, Microsoft was also the only one of the four that enjoyed a rise in its shares following the release of its earnings report. Meta’s stock was down more than 2% in early morning trading after reporting negative free cash flow of $2.12 billion. Shares of Google parent company Alphabet, which reported a negative free cash flow of $9.07 billion on Wednesday evening, just had their worst day ever on Thursday at a 12% decline. Amazon’s shares were down roughly 7% on Thursday evening after the report. On the earnings call, Amazon CEO Jassy defended the company’s AI strategy, saying that Amazon is “very well positioned for what’s happening in AI.” Jassy cited initiatives like Trainium, the company’s custom-designed AI accelerator chips that are seeking to challenge Nvidia’s AI chips dominance, and Bedrock, Amazon’s AI model marketplace. Jassy also touched on AI shopping agents, which have been gaining traction (particularly since Meta launched Muse last month). Some experts believe that agentic shopping can pose a danger to Amazon’s advertising business, but Jassy was adamant that’s not the case. “Few customers are doing much shopping this way yet, as the experience is still not great, nor more convenient than coming to a retailer directly to research or one-click order there,” Jassy said. But when it comes to their in-house agentic shopping assistant, Alexa for Shopping, Jassy sounded more confident about adoption. He said that customer interactions with the tool were up 570% year over year. “U.S. customers using Alexa for Shopping are spending 50% more per order than those who don’t,” Jassy said. “Though we anticipate working with horizontal agents, we believe Alexa for Shopping is going to be the primary shopping agent customers use to shop Amazon. Having a shopping assistant constantly by your side as you browse, get inspired, have questions on product detail pages, and that you can simply ask to buy something based on your prior purchases that already has your history, your shipping address, and payment info is uniquely helpful and convenient for customers.”