Amazon AI exec expects years of negative cash flow

Amazon plans to spend about $220 billion this year on the physical systems behind artificial intelligence, and the effort has wiped out its free cash flow. Power shortages, costly servers and construction delays are adding to the strain, Business Insider reported on Monday. The report draws on internal documents and a recording of a September staff meeting. At that meeting, AWS finance chief John Felton joked to infrastructure executive Prasad Kalyanaraman: "You've taken us free cash flow negative as a company, so congratulations."businessinsider.com

Kalyanaraman did not push back. He said Amazon's AI business is "hugely free cash flow negative" and that he expects company-wide free cash flow to stay negative for "the next couple of years or so," according to Business Insider.businessinsider.com

Cash turns negative

Amazon's second-quarter release showed free cash flow for the trailing twelve months at an outflow of $7.6 billion. A year earlier it was an inflow of $18.2 billion. The swing came mainly from a $66.1 billion rise in spending on property and equipment, which the company tied to AI. Capital spending reached $54.2 billion in the June quarter, up from $32.1 billion a year earlier, CNBC reported. Amazon had earlier guided to $200 billion for the year but raised the figure to $220 billion, with CEO Andy Jassy citing higher memory prices.cnbc.com+1

Racks waiting for power

Internal emails cited by Business Insider projected that Amazon would receive about $5 billion of Nvidia ↗ 2.54% GB300 server racks in August, followed by roughly $3 billion a month after that. Some data center sites had room for the racks but not enough power to run them, so equipment sat in staging warehouses. Under a new "Early Rack Receipt" process, Amazon takes ownership of hardware earlier in the supply chain, which means paying cash sooner. An Amazon spokesperson called staging hardware near deployment sites "best business practice." In West Texas, a shortage of skilled workers led AWS to pay for housing near its construction sites.businessinsider.com

Betting on demand

Management says demand justifies the spending. AWS revenue grew 37% to $42.2 billion in the second quarter, beating the roughly 31% analysts expected, Reuters reported. Jassy said Amazon still lacked enough computing capacity to serve customers. The AWS backlog, meaning contracted work not yet delivered, reached $496 billion, per CNBC. Management expects servers to pay for themselves in just under three years and to stay useful for five to six years, according to an Insider Monkey analysis on Yahoo Finance. The same analysis said Amazon's shares have been flat over the past six months.finance.yahoo.com+2

Some investors are still wary. Analyst Dan Ives of Yorkville Ives wrote that the market is "repricing anything that funds multi-year builds against revenue that arrives later," Business Insider noted. Amazon will report third-quarter results on Thursday, October 29. Investors will be watching for any further increase in spending and for signs of how Amazon plans to pay for it, according to Insider Monkey.businessinsider.com+1

"The forecast is changing on a daily basis," Kalyanaraman told staff, per Business Insider.businessinsider.com