Amazon's Cash Flow Plunges 95% as $200 Billion AI Bet Delivers Record Margins

Amazon's Q1 earnings smashed expectations with record margins, but free cash flow plunged 95% due to massive AI infrastructure spending. Advertising revenue surged 24%.

Amazon delivered a first-quarter earnings report that shattered Wall Street expectations, but the headline numbers conceal a dramatic trade-off: record profitability funded by the deepest cash flow hole in the company's history.

The e-commerce and cloud computing giant posted adjusted earnings per share of $2.78, comfortably beating analyst estimates, as revenue climbed to $181.5 billion. Operating income surged to $23.9 billion, pushing the operating margin to an all-time high of 13.1%. The cloud division AWS remained the engine room, with revenue growth accelerating to 28% and operating margins approaching 38%.

Yet the free cash flow over the trailing twelve months collapsed by 95% to just $1.2 billion, down from nearly $26 billion in the prior period. The culprit is Amazon's unprecedented spending spree on artificial intelligence infrastructure. The company plans $200 billion in capital expenditures for 2026, with management insisting that the bulk of AWS-related investments are already backed by firm customer commitments. The order book supports this claim, standing at $364 billion.

Advertising Surge Provides Second Growth Engine

Beyond cloud computing, Amazon's advertising business emerged as a powerful profit driver. Segment revenue jumped 24% to approximately $17.2 billion, pushing the trailing twelve-month total past $70 billion. This advertising momentum helped offset rising cost pressures elsewhere.

The satellite internet project Kuiper is weighing on North American operations, with CFO Brian Olsavsky flagging roughly $1 billion in additional costs for the second quarter. Commercial launch is slated for the third quarter. Higher fuel prices are also squeezing transport margins, though Amazon is partially offsetting these through new logistics surcharges.

Prime Day Moves to June

Buried in the earnings release was a strategic shift with immediate financial implications: Amazon is moving this year's Prime Day from its traditional July slot to June, pushing the blockbuster discount event into the second quarter for the first time.

The timing change is reflected in an unusually bullish outlook. Management guided for second-quarter net sales between $194 billion and $199 billion, exceeding market expectations by more than $5 billion. The June event will serve as the first real test of these ambitious revenue targets.

Wall Street Reacts with Mixed Signals

The market response has been characteristically split. Investment banks including Goldman Sachs and Pivotal Research raised their price targets above $320, while Evercore ISI set a new target of $315, citing strong operational momentum. Bank of America maintained its buy rating with a $310 target.

However, some analysts noted that AWS's 28% growth rate, while impressive, narrowly missed the highest end of market expectations. Citi and Jefferies praised the quarter but flagged this subtle disappointment.

The stock has been on a tear, gaining more than 22% over the past month to close at €222.40 on Thursday, just shy of its April 52-week high of €225.40. Trading was suspended on May 1 for a public holiday, with markets set to reopen with the shifted Prime Day squarely in focus.

The tension in Amazon's current position is unmistakable. The company is delivering explosive operational growth while financing it through capital consumption at a scale rarely seen in corporate history. The June Prime Day will provide the next concrete catalyst for revenue, but the broader question remains whether this spending trajectory is sustainable.