AWS delivered $35.6B in Q4 2026 revenue, up 24% year-on-year and ahead of the $34.9B consensus. Operating income hit $12.5B, up 17%, keeping the cloud unit's margin at 35%. For the full year, AWS generated $45.6B in operating income, up from $39.8B in 2024.
The market didn't celebrate. Amazon shares dropped 7-8% after-hours when the company guided 2026 capital expenditure to $200B, well above prior expectations. The spending targets AI infrastructure, custom chips, robotics, and satellite projects. Free cash flow already fell 69% over the trailing twelve months to $14.8B, and analysts are questioning whether AI returns will justify the outlay.
AWS remains Amazon's profit engine. The cloud unit accounts for 57% of total operating income ($80B across all segments) despite representing a fraction of Amazon's $716.9B in annual revenue. The $200B backlog and accelerating quarterly growth (19-24% through 2025) suggest enterprise AI demand is real, not just vendor hype.
What this means in practice: AWS is winning AI workloads, but the infrastructure arms race is expensive. Azure and Google Cloud face similar supply constraints, giving AWS an edge if it can maintain delivery. CTOs betting on AWS for AI projects should factor in potential price adjustments as Amazon recoups capex. The company issued $15B in bonds in November 2025, signaling it's willing to leverage its balance sheet to stay ahead.
Three things to watch: whether AWS can sustain 20%+ growth into 2027, how quickly the $200B capex translates to available capacity, and whether margin compression forces pricing changes. UBS projects AWS could double revenue by 2028, but that assumes the current spending pays off. History suggests Amazon plays long games, but this is the biggest bet yet.