Amazon is now borrowing to build AI capacity, and AWS growth is its case for it

For most of the past few years Amazon paid for its warehouses and data centres out of the cash its shops and cloud business threw off. Late last year it began borrowing for them. Long-term debt stood at $173.1 billion at the end of September, up from $65.6 billion at the end of December, and most of the rise came from new borrowing this year. Over the twelve months to September, free cash flow, which is operating cash less spending on property and equipment net of sale proceeds, was an outflow of $42.4 billion, against an inflow of $14.8 billion a year earlier.

The business did not stop generating cash. Operating cash flow over the same twelve months rose to $168.3 billion. It was simply outrun by capital spending, which the company said mainly reflects investment in artificial intelligence. The borrowing therefore rests on one proposition, that the computing capacity being bought will earn a return, and that is largely a proposition about Amazon Web Services, the unit that rents computing power to other companies.

On that, last quarter gave management plenty to point to. AWS sales grew 39% in the September 2026 quarter, and its operating income reached $17.8 billion, up by more than half from a year earlier. That was 63.3% of Amazon's group operating income, calculated from the reported segment figures. Its operating margin slipped slightly from the quarter before. The company now attaches a number to the next two years: in its results, Andy Jassy, the chief executive, projected AWS revenue growth of more than 40% in each of 2027 and 2028.

The spending plan is where the figures fit less neatly. Amazon still expects cash capital spending of about $220 billion this year. Net of sale proceeds and incentives, it spent $75.9 billion in the third quarter alone. Subtracting the first nine months' net spending from the guidance leaves about $47.8 billion for the fourth quarter, by our calculation from the reported cash flow: well below the third quarter and close to the average pace of the first half.

There are ordinary reasons the cash line could move unevenly. Some equipment is installed before it is paid for: property and equipment acquired but not yet paid rose over the nine months, and the company said the capacity it adds differs from one quarter to the next. The guidance is also only approximate, so the full year could land above it. What management did not suggest is a slowdown in the build-out itself; Jassy said Amazon expects to spend "meaningfully more in 2027".

The cost of what has already been built is starting to show in the income statement. Depreciation and amortisation rose 24.7% from a year earlier, about twice the 12% growth in sales. AWS's growth and margin are what the company offers in support of carrying that cost and the new debt. The fourth quarter's cash flow statement will show whether the $220 billion figure was a ceiling or a floor.