Amazon (NASDAQ:AMZN) opened its Trainium AI chips to every PyTorch developer on Monday. Engineers can now run their existing code on Amazon’s own hardware without rewriting it. That matters because Amazon’s chips business already sells at an annual pace above $25 billion, and Amazon Web Services is growing faster than it has in 18 quarters. But the AI build-out behind that growth has used so much cash that free cash flow turned negative over the past 12 months.
Amazon sells goods to shoppers, collects fees from sellers and Prime members, sells ads to brands, and rents computing power to companies through AWS. The business looks strong enough to carry the spending, but the stock now depends on AWS demand lasting long enough for cash flow to recover. Investors who want more big technology names to follow can find Amazon in our recent list 10 Best Future Stocks to Buy for the Next 5 Years.
AWS Has Sped Up Sharply in a Year
AWS sales grew 37% in the second quarter, up from 17% in the same quarter of 2025. CEO Andy Jassy said the AI business has passed the same $25 billion annual run rate as chips, and both are growing by triple-digit percentages. Anthropic and OpenAI have also made multi-year commitments to Trainium, according to Amazon, which gives that capacity named buyers. If you’re interested in AI investing, we recently compiled a report on 10 Best AI Stocks to Buy in October.
Stores and Ads Keep the Core Strong
Advertising sales rose 26% to $19.8 billion in the second quarter. Revenue has grown about 13.2% a year over the past five years, and that record sits on $775.68 billion in sales over the past 12 months. Guidance for the third quarter calls for sales growth of 9% to 12%, which looks slower than the second quarter’s 20%. But the company said growth would be nearly 400 basis points higher without Prime Day’s effect in both years.
Spending Has Pushed Free Cash Flow Below Zero
Free cash flow was an outflow of $7.6 billion over the past 12 months, compared with an inflow of $18.2 billion a year earlier. Operating cash flow rose 33%, so the business is producing more cash, but spending on property and equipment, mostly for AI, rose even more.
Long-term debt stood at $128.9 billion at the end of the second quarter, up from $65.6 billion at the end of last year. Second-quarter net income of $62.6 billion included $53.4 billion of pre-tax other income, mostly from Anthropic investments. Operating income of $27.5 billion, up 43%, is the cleaner gauge of the business. Those facts limit the story without undoing it, because operating profit is rising and large AI labs have committed to the capacity being built. For someone holding the stock, that means owning a profit story that still depends on those commitments turning into cash.
Investors Are Pricing Amazon on AWS Growth
The stock trades at 30.09 times forward earnings, about 95% above the sector median of 15.40. A forward P/E divides the share price by the profit analysts expect per share, so it shows what investors pay today for each dollar of expected earnings. It rests on adjusted earnings estimates, which matters because reported profit this year includes the Anthropic gain.
Against its own history the stock looks cheaper, since the five-year average is 158.74 and the stock sits about 81% below it. That average is stretched, though, because Amazon earned very little per share early in the window, so almost any price looked high. Against the sector, the premium shows investors are paying up for AWS growth.
Hedge fund interest kept growing, with 369 funds holding Amazon at the end of the second quarter against 353 in the first, even as free cash flow turned negative. For investors tracking hedge fund interest in cloud computing, our list of 10 Best Cloud Computing Stocks to Buy According to Hedge Funds covers more names. Short interest is only 0.88% of the float, which means that share of freely traded stock has been borrowed and sold in hopes of buying it back cheaper. That small a number suggests doubts about the spending show up mostly in the multiple, not in bets that the stock will fall.
That brings the story back to the chip news, because more developers on Trainium could add demand for the capacity Amazon is paying for. Cash flow can catch up if AWS keeps growing near its current pace, since the business already produces more cash each year and mainly needs the spending to level off. The third-quarter report next week will show whether the outflow is shrinking and whether AWS holds its pace.
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This article is originally published at Insider Monkey.
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