Amazon and Intel shares dropped sharply in after-hours U.S. trading after their quarterly reports exposed a common constraint on the AI buildout: demand remains strong, but the cost, supply chain and physical infrastructure required to serve it are becoming harder to manage. Amazon fell about 7% after its release, while Intel sank more than 20% at one point as its fourth-quarter forecast fell short of market expectations.
Amazon Web Services delivered the strongest growth figure in the report, with third-quarter revenue rising 39% year over year to $46.0 billion. Yet the cloud division's momentum was overshadowed by the scale of Amazon's infrastructure spending and a softer outlook for the holiday quarter.
Intel, meanwhile, reported better-than-expected third-quarter earnings and a 78% jump in Data Center and AI revenue, but warned that shortages of key packaging materials, weaker PC conditions and a disruption at an Israeli wafer plant would curb near-term output and profitability.
Amazon's AI expansion turns free cash flow negative
Amazon reported total operating profit of $17.8 billion for the third quarter, up from $11.4 billion a year earlier. AWS improved its operating profitability as the company added cloud capacity for artificial intelligence workloads and other computing services.
The cost of that expansion was visible in the company's cash-flow figures. Amazon's capital expenditures exceeded $77.0 billion during the quarter, according to its quarterly report, surpassing market expectations. The spending covers data centers, servers, networking equipment and other property needed to support AWS and Amazon's wider logistics operations.
Over the trailing 12 months, Amazon generated approximately $168.3 billion in operating cash flow, a 29% year-over-year increase. Its free cash flow, which measures cash remaining after capital investment, swung to negative $42.4 billion from positive $14.8 billion in the comparable prior-year period.
That reversal does not indicate that Amazon lacks operating cash generation. It shows that the company is committing more cash to physical and technical infrastructure than its operations currently produce after investment. The pressure is especially acute for cloud providers racing to secure advanced computing capacity before rivals do.
Amazon's fourth-quarter guidance added to concerns. The company projected revenue and operating profit below prevailing market expectations for the holiday season, when its retail business typically delivers a large share of annual sales.
Core consumer businesses show slower growth
Amazon's retail and advertising operations also lost momentum during the quarter. Online-store revenue increased 2% year over year to $68.5 billion, its slowest expansion since early 2023.
Advertising sales rose 11%, down from growth rates above 20% over the previous year and the lowest pace since Amazon began separately reporting the segment in 2020. Advertising has become a major source of higher-margin revenue for Amazon, so a slowdown in that business can carry more weight than an equivalent decline in retail sales growth.
The market reaction reflected the contrast between AWS's rapid expansion and the slower growth of businesses that have historically helped fund Amazon's investment cycle. Microsoft's cloud revenue grew 48% in a same-day earnings comparison, while its spending profile was viewed as more restrained. That comparison increased pressure on Amazon to show that its much larger capital outlays will translate into sustained margins and revenue growth.
Intel's strong quarter gives way to a weaker forecast
Intel's third-quarter results initially appeared more resilient. Revenue rose 21% year over year to $16.5 billion, while adjusted earnings per share reached $0.52, above consensus expectations of roughly $0.41. Gross margin reached 43% during the quarter.
The company's Data Center and AI division was the standout performer, with revenue rising 78% to $7.3 billion as demand for AI-related server capacity increased. Yet Intel's outlook suggested that the company cannot fully convert that demand into near-term sales.
Intel projected fourth-quarter revenue of $15.0 billion to $16.0 billion, below a market average near $17.0 billion. Some estimates had been above $18.0 billion. Its adjusted EPS forecast of $0.25 also trailed expectations around $0.43 to $0.45.
Gross margin is expected to decline to 38% in the fourth quarter from 43% in the third, indicating that product mix, supply constraints and operational disruptions will weigh on profitability even as data-center demand remains elevated.
Packaging bottlenecks and plant disruption limit output
Intel said an industry-wide shortage of advanced organic substrates used in EMIB packaging was constraining AI server output. EMIB, or Embedded Multi-die Interconnect Bridge, is Intel's chip-packaging technology for linking multiple semiconductor components within a single package. The substrate shortage limits the number of finished AI server products Intel can deliver, regardless of customer demand for the underlying chips.
The company also reported weaker results in its PC-focused client business, where third-quarter revenue fell 5% year over year to $8.1 billion, below an estimate near $8.98 billion. Intel expects PC conditions to remain difficult, projecting global PC shipments will decline 12% in 2026 and a further 10% in 2027.
Management linked part of that pressure to tight DRAM supply and higher memory prices. Rising memory costs can increase the price of completed PCs, potentially discouraging purchases in a market already facing softer demand.
An explosion at Intel's Kiryat Gat wafer facility in Israel added a more immediate operational problem. Intel said the plant, which uses a 10 nm process for data-center chips, was offline for roughly two weeks. The disruption is expected to reduce fourth-quarter server-chip revenue by about $300 million and lower companywide gross margin by 200 basis points, with effects extending into the first quarter.
The combined results place the AI supply race in a more complicated position. Amazon is spending aggressively to build capacity, while Intel is reporting strong demand but limited by packaging shortages, memory costs and a manufacturing interruption. For technology markets, the immediate question is less whether AI infrastructure demand exists than whether companies can build, finance and deliver that capacity without further damage to margins and cash flow.
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