AWS Enjoys Surging Profits, But Free Cash Flow Turns Negative
Free cash flow equals operating cash flow minus capital expenditures. If capex exceeds economic or real depreciation, then that cash could be returned to the owners via dividend or stock buybacks without sacrificing the company's ability to generate future profits and cash flow. It is a sustainable payout to the owners. Negative free cash flow increases wealth if marginal capex returns are high enough relative to the risk hurdle. Amazon is still quite profitable today, but investors are concerned future returns are inadequate to justify current negative free cash flow. After all, current wealth is being sacrificed in pursuit of future wealth that may be an illusion. The crux of investor angst is that end user AI revenues are tiny relative to investments. Goldman Sachs forecasts global AI capex to reach $1 trillion in 2026 and $3 trillion in 2030. Gartner, the consulting firm estimates $64 billion in 2026 AI end user revenues. The gap between return as measured by end user revenue v...