Amazon eyes $8B Nvidia chip lease deal, reports say

Amazon now expects to spend about $220 billion in cash capital expenditures in 2026, up from its earlier estimate of about $200 billion. CEO Andy Jassy announced the higher figure in July, when Amazon Web Services reported $42.2 billion in second-quarter revenue, up 37% from a year earlier. More than two months later, investors are still debating the forecast, and new reports say Amazon is looking for ways to move some of the cost of its AI build-out to outside investors.insidermonkey+3

On the earnings call, Jassy said the increase came from the price of components: "the higher cost of memory pushing this number up from our prior estimate of about $200 billion." He added that even at the higher level, Amazon "will still not have enough capacity to meet all the demand we have in 2026," and that "this dynamic will also be true in 2027, too".fortune+1

A cloud unit that keeps speeding up

AWS growth sped up for the fifth quarter in a row, reaching its fastest pace in 18 quarters. The unit's operating income rose 64% to $16.6 billion, with a margin of 39.4%. Its backlog of contracted business stands at $496 billion. Jassy said AWS could "very possibly be a trillion-dollar annual revenue business for us in time". Amazon's total quarterly revenue rose 20% to $200.6 billion. After the report, the company's market value passed $3 trillion for the first time.kbnd+4

Jassy's defense of the spending started before the July increase. When the forecast was still about $200 billion, he said, "We're not investing approximately $200 billion in capex in 2026 on a hunch." He also said much of the AWS spending is expected to earn money in 2027 and 2028.tokenpost

Cash flow strain and new financing

The spending has a cost. Amazon's free cash flow over the past 12 months turned negative, at minus $7.6 billion, compared with positive $18.2 billion a year earlier. Jassy has warned that Amazon will "encounter free cash flow headwinds" until its new data centers are generating revenue.finance.yahoo+2

Amazon is reportedly in talks to move about $8 billion of Nvidia ↘ 0.52% Grace Blackwell chips into a special-purpose vehicle backed by outside investors. Under that arrangement, Amazon would lease the chips back, freeing up capital and taking the assets off its balance sheet.finance.yahoo

AWS CEO Matt Garman disputed the idea that AI spending is a bubble in an interview on a16z's podcast. "We feel really good about the spend we're making now," he said. He added that AWS does not depend on a single customer for most of its capacity. Billionaire investor Ray Dalio takes the opposite view. He calls the AI boom a "classic bubble" and warns that rising debt and higher borrowing costs could push it toward a breaking point.finance.yahoo