Amazon's Free Cash Flow Went Negative by $7.6 Billion Even as Operating Cash Flow Rose 33%. Here's the Gap AI Capex Is Actually Creating.
Key Points
A company's earnings are important, but they don't provide the full financial picture.
Cash flow is how companies actually pay for things, and right now, Amazon is spending more cash than it generates.
The earnings statement is where most investors go first when assessing a company's financial results. On that score, Amazon (NASDAQ: AMZN) looks like it had a breakout quarter in the second quarter of 2026, with earnings of $5.75 per diluted share, up from $1.68 in the same quarter of 2025. But there's a winkle here, and the story gets even more complicated when you step back and examine the cash flow statement.
Amazon's quarter wasn't really as good as it looks
Earnings are created by complying with generally accepted accounting principles (GAAP). They are, even at the best of times, just a hazy snapshot of a company's performance. That's highlighted by Amazon's $5.75 second-quarter earnings figure, which includes $69 billion in "other" income. That isn't likely to be repeated, as it is related to the company's investment in Anthropic. And if Anthropic's value declines, that benefit could actually reverse.
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But the presence of that number, which was actually larger than the company's $51.3 billion in operating income, highlights why investors also look at the cash flow statement. The cash flow statement shows where the company's cash is generated and how it is used. For years, large technology companies like Amazon generated huge amounts of cash, allowing them to amass large cash balances to fund their businesses, capital investment needs, and acquisitions.
Artificial intelligence (AI) has changed the cash flow story. Over the past 12 months, Amazon generated around $161.4 billion in cash, up 33% year over year, but spent $169 billion, meaning the company spent around $7.6 billion more in cash than its business generated. Those are very large numbers, with AI spending driving a significant share of the company's capital investment plan.
There's more spending to come in the AI arms race
This is worth knowing because spending on artificial intelligence appears to be heating up rather than cooling down. And if Amazon isn't generating enough cash to cover its spending, it will need to find money elsewhere. Which is where another cash flow number comes into play: the nearly $77 billion the company raised over the past year from the sale of long-term debt.
This ties the story to the balance sheet, where Amazon's long-term debt rose from $65.6 billion at the end of 2025 to nearly $128.9 billion at the end of the second quarter of 2026. If you own Amazon or are considering buying it, you need to look beyond its earnings and pay close attention to the negative impact of AI spending on its cash flow statement and balance sheet.
Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.