Amazon spent $97.18 billion in a quarter against $42.42 billion in cash flow, while Intel pays the price for memory: who gains from the AI bill?

Executive summary

Amazon and Intel reported results for the quarter ended September on the evening of 29 October, after the New York stock market closed. The companies stand on opposite sides of the AI bill. Amazon is among the largest companies paying it, building data centres and buying chips. Intel is among the suppliers expected to receive a share, selling processors to those centres.

Amazon posted its highest-ever operating margin, the ratio of operating profit to revenue, at 13.9%. Revenue at its cloud division Amazon Web Services (AWS) grew 39.3%, the fastest pace in about five years, according to the company. But free cash flow (Free Cash Flow, FCF), the cash remaining from operations after spending on fixed assets, fell to negative $42.36 billion over the last 12 months, from negative $7.60 billion just one quarter earlier. In Q3 alone, the company spent a net $75.88 billion on property and equipment and $21.30 billion on OpenAI shares, against operating cash flow of $42.42 billion. Operating cash flow is the cash a business generates after its operating payments. The company financed the gap with borrowing.

Intel's Data Center and AI segment revenue grew 78% to $7.3 billion, while adjusted earnings per share (Non-GAAP Earnings Per Share), profit per share excluding company-specified items, beat analysts' estimates by 27.9%, according to EL7 data. But the company's guidance, its published Q4 projections, put revenue between $15.0 and $16.0 billion, below consensus estimates, the average of analysts' forecasts, of $16.72 billion, according to EL7 data. The company says in its quarterly report that higher component prices, particularly memory, reduced demand for PC processors. In our reading, those prices began rising with the surge in data centre spending. An incident that halted its Kiryat Gat plant for about two weeks added pressure on production and profit margins.

The market's reaction to both companies was evident in the 30 October session. As of 14:13 GMT, Intel shares were down 28.96% and Amazon shares 2.79% from their official closing prices on 29 October. Our pre-results research had calculated that Amazon needed operating cash flow growth of 37.5% in the second half to cover its spending. Q3 growth came in at 19.4%.