By Jared Blikre

Amazon’s (AMZN) earnings beat came with a catch.

The e-commerce and cloud computing giant delivered a strong first quarter on the surface, beating Wall Street estimates for revenue and operating income while Amazon Web Services (AWS), its cloud operation, posted its fastest growth in 15 quarters.

But the report also showed the cost of Amazon’s artificial intelligence push: free cash flow nearly disappeared.

Amazon's free cash flow is down 95% from a year ago. Amazon

Free cash flow is the money a company has left after operating the business and funding major investments. In Amazon’s case, that number fell 95% to $1.2 billion over the past 12 months, down from nearly $26 billion a year earlier, according to the company’s earnings presentation. And that happened even as operating cash flow rose 30%.

The reason is simple: Amazon is making more cash from its businesses, but it’s spending almost all of it on AI infrastructure. And that’s the tension investors are weighing after a quarter that otherwise looked strong.

Revenue from AWS rose 28% to $37.6 billion, ahead of Wall Street expectations. But some analysts noted AWS growth may still have fallen short of what big investors were looking for, especially after Amazon’s stock rallied into the print.

On the company’s earnings call, CEO Andy Jassy defended the spending ramp, saying Amazon remains confident in its long-term AWS investments.

“We continue to be confident in the long-term [capital expenditure] investments we're making,” Jassy said. “However, in times of very high growth, like now, where the capex growth meaningfully outpaces the revenue growth, the early years, free cash flow is challenged.”

CFO Brian Olsavsky said Amazon’s capital spending was $43.2 billion in the first quarter, primarily tied to AWS and generative AI.

The bull case is that Amazon is spending against demand that is already showing up in contracts.

Jassy said AWS’s backlog — business Amazon has already contracted but not yet recognized as revenue — was $364 billion for the quarter. That figure does not include Amazon’s recently announced Anthropic deal for more than $100 billion.

Amazon also said OpenAI committed to consume about 2 gigawatts of Trainium capacity through AWS beginning in 2027, while Anthropic secured up to 5 gigawatts of current and future generations of Amazon’s Trainium chips.

The next test is whether that demand turns into enough revenue growth to make the cash drain look temporary — rather than the new cost of competing in AI.