AMZN 10-K & 10-Q changes, risk factors and insider trading

Please carefully consider the following discussion of significant factors, events, and uncertainties that make an investment in our securities risky. The events and consequences discussed in these risk factors could, in circumstances we may or may not be able to accurately predict, recognize, or control, have a material adverse effect on our business, growth, reputation, prospects, financial condition, operating results (including components of our financial results), cash flows, liquidity, and stock price. These risk factors do not identify all risks that we face; our operations could also be affected by factors, events, or uncertainties that are not presently known to us or that we currently do not consider to present significant risks to our operations. In addition to the factors discussed in Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and in the risk factors below, global economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of the risks discussed below. Many of the risks discussed below also impact our customers, including third-party sellers, which could indirectly have a material adverse effect on us. The disclosures in this section reflect our beliefs and opinions as to factors that could materially and adversely affect us in the future. References to past events are provided by way of example only and are not intended to be a complete listing or a representation as to whether or not such factors have occurred in the past.

Competition continues to intensify, including with the development of new business models and the entry of new and well-funded competitors, and as our competitors enter into business combinations or alliances and established companies in other market segments expand to become competitive with our business. In addition, new and enhanced technologies, including search, web and infrastructure computing services, practical applications of artificial intelligence and machine learning, digital content, satellites, and electronic devices continue to increase our competition. The internet facilitatesand other technologies including artificial intelligence facilitate competitive entry and comparison shopping, which enhances the ability of new, smaller, or lesser knownlesser-known businesses to compete against us. As a result of competition, our product and service offerings may not be successful, we may fail to gain or may lose business, and we may be required to increase our spending or lower prices, any of which could materially reduce our sales and profits.

We may have limited or no experience in our newer market segments, and our customers may not adopt our product or service offerings. These offerings, which can present new and difficult technology challenges, may subject us to claims if customers of these offerings experience, or are otherwise impacted by, service disruptions, delays, setbacks, or failures or quality issues. In addition, profitability or other intended benefits, if any, in our newer activities may not meet our expectations, and we may not be successful enough in these newer activities to recoup our investments in them, which investments are often significant. Failure to realize the benefits of amounts we invest in new technologies, products, or services could result in the

quality issues. In addition, profitability or other intended benefits, if any, in our newer activities (including development and adoption of automation, artificial intelligence, and machine learning technologies for customer and internal use), may not meet our expectations, and we may not be successful enough in these newer activities to recoup our investments in them, which investments are often significant. Failure to realize the benefits of amounts we invest in new technologies, products, or services could result in the value of those investments being written down or written off. In addition, our sustainability initiatives may be unsuccessful for a variety of reasons, including if we are unable to realize the expected benefits of new technologies or if we do not successfully plan or execute new strategies, which could harm our business or damage our reputation.

•government regulation (such as regulation of our product and service offerings and of competition); restrictive governmental actions (such as trade protection or retaliatory measures, including export duties and quotas and custom duties and tariffs, and restrictions around the import and export of certain products, technologies, and components); nationalization; and restrictions on foreign ownership;

•laws and policies of the U.S. and other jurisdictions affecting trade,trade (such as tariff policy changes), foreign investment, loans, and taxes; and

The People’s Republic of China (“PRC”) and India regulate Amazon’s and its affiliates’ businesses and operations in country through regulations and license requirements that may restrict (i) foreign investment in and operation of the internet, IT infrastructure, data centers, retail, delivery, and other sectors, (ii) internet content, and (iii) the sale of media and other products and services. For example, in order to meet local ownership, regulatory licensing, and cybersecurity requirements, we provide certain technology services in China through contractual relationships with third parties that hold PRC licenses to provide services. In India, the government restricts the ownership or control of Indian companies by foreign entities involved in online multi-brand retail trading activities. For www.amazon.in, we provide certain marketing tools and logistics services to third-party sellers to enable them to sell online and deliver to customers, and we hold an indirect minority interest in an entity that is a third-party seller on the www.amazon.in marketplace. Although we believe these structures and activities comply with existing

certain technology services in China through contractual relationships with third parties that hold PRC licenses to provide services. In India, the government restricts the ownership or control of Indian companies by foreign entities involved in online multi-brand retail trading activities. For www.amazon.in, we provide certain marketing tools and logistics services to third-party sellers to enable them to sell online and deliver to customers, and we hold an indirect minority interest in an entity that is a third-party seller on the www.amazon.in marketplace. Although we believe these structures and activities comply with existing laws, they involve unique risks, and the PRC and India may from time to time consider and implement additional changes in their regulatory, licensing, or other requirements that could impact these structures and activities. There are substantial uncertainties regarding the interpretation of PRC and Indian laws and regulations, and it is possible that these governments will ultimately take a view contrary to ours. In addition, our Chinese and Indian businesses and operations may be unable to continue to operate if we or our affiliates are unable to access sufficient funding or, in China, enforce contractual relationships we or our affiliates have in place. Violation of any existing or future PRC, Indian, or other laws or regulations or changes in the interpretations of those laws and regulations could result in our businesses in those countries being subject to fines and other financial penalties, having licenses revoked, or being forced to restructure our operations or shut down entirely.

In addition, because China-based sellers account for significant portions of our third-party seller services and advertising revenues, and China-based suppliers provide significant portions of our components and finished goods, regulatory and trade restrictions, tariff policy changes and trade disputes, data protection and cybersecurity laws, economic factors, geopolitical events, security issues, or other factors negatively impacting China-based sellers and suppliers could adversely affect our operating results.

Demand for our products and services can fluctuate significantly for many reasons, including as a result of seasonality, promotions, product launches, or unforeseeable events, such as in response to global economic conditions such as recessionary fears or rising inflation,inflation (including as a result of tariff policy changes), natural or human-caused disasters (including public health crises) or extreme weather (including as a result of climate change), or geopolitical events. For example, we expect a disproportionate amount of our retail sales to occur during our fourth quarter. Our failure to stock or restock popular products in sufficient amounts such that we fail to meet customer demand could significantly affect our revenue and our future growth. When we overstock products, we may be required to take significant inventory markdowns or write-offs and incur commitment costs, which could materially reduce profitability. We regularly experience increases in our net shipping cost due to complimentary upgrades, split-shipments, and additional long-zone shipments necessary to ensure timely delivery for the holiday season. If too many customers access our websites within a short period of time due to increased demand, we may experience system interruptions that make our websites unavailable or prevent us from efficiently fulfilling orders, which may reduce the volume of goods we offer or sell and the attractiveness of our products and services. In addition, we may be unable to adequately staff our fulfillment network and customer service centers during these peak periods and delivery and other fulfillment companies and customer service co-sourcers may be unable to meet the seasonal demand. Risks described elsewhere in this Item 1A relating to fulfillment network optimization and inventory are magnified during periods of high demand.

We regard our trademarks, service marks, copyrights, patents, trade dress, trade secrets, proprietary technology, and similar intellectual property as critical to our success, and we rely on trademark, copyright, and patent law, trade secret protection, and confidentiality and/or license agreements with our employees, customers, and others to protect our proprietary rights. Effective intellectual property protection is not available in every country in which our products and services are made available. We also may not be able to acquire or maintain appropriate domain names in all countries in which we do business. Furthermore, regulations governing domain names may not protect our trademarks and similar proprietary rights. We may be unable to prevent third parties from acquiring domain names that are similar to, infringe upon, or diminish the value of our trademarks and other proprietary rights.

We are continuing to rapidly and significantly expand our global operations, including increasing our product and service offerings andofferings, scaling our infrastructure to support our retail and services businesses.businesses (including our technology infrastructure), and adopting and utilizing artificial intelligence and machine learning technologies. The complexity of the current scale of our business can place significant strain on our management, personnel, operations, systems, technical performance, financial resources, and internal financial control and reporting functions, and our expansion increases these factors. Failure to manage growth effectively could damage our reputation, limit our growth, and negatively affect our operating results.

•the extent to which operators of thenetworks, networkssystems, and services between ourus and customers andsuccessfully ourdivert storescustomers successfullyfrom or charge fees to grantaccess our customers unimpairedstores and unconstrainedservice access to our online servicesofferings;

•disruptions from natural or human-caused disasters (including public health crises) or extreme weather (including as a result of climate change), geopolitical events and security issues (including terrorist attacks, armed hostilities, and political conflicts, including those involving China), labor or trade disputes (including restrictive governmental actions impacting us, our customers, and our third-party sellers and suppliers in China or other foreign countries), tariff policy changes,changes (such as tariffs proposed or implemented by the U.S. and other countries and any retaliatory actions), and similar events; and

We rely on a limited number of shipping companies to deliver inventory to us and completed orders to our customers. An inability to negotiate acceptable terms with these companies or performance problems, staffing limitations, or other difficulties experienced by these companies or by our own transportation systems, including as a result of labor market constraints and related costs, could negatively impact our operating results and customer experience. In addition, our ability to receive inbound inventory efficiently and ship completed orders to customers also may be negatively affected by natural or human-caused disasters (including public health crises) or extreme weather (including as a result of climate change), geopolitical events and security issues, labor or trade disputes, tariff policy changes, and similar events.

Because we collect, process, store, and transmit large amounts of data, including confidential, classified, sensitive, proprietary, and business and personal information, failure to prevent, detect, or mitigate data loss, theft, misuse, unauthorized access, or other security incidents or vulnerabilities affecting our or our vendors’ or customers’ technology, products, and systems, could: expose us or our customers to a risk of loss, disclosure, or misuse of such information; adversely affect our operating results; result in litigation, liability, or regulatory action (including under laws related to privacy, data use, data protection, data security, network security, and consumer protection); deter customers or sellers from using our stores, products, and services; and otherwise harm our business and reputation. We use third-party technology and systems for a variety of reasons, including, without limitation, artificial intelligence technologies, encryption and authentication technology, employee email,email and other communication technologies, content delivery to customers, back-office support, and other functions. Some of our systems have experienced past security incidents, and, although they did not have a material adverse effect on our operating results, there can be no assurance that future incidents will not have material adverse effects on our operations or financial results. Although we have developed systems and processes that are designed to protect customer data and prevent, detect, or mitigate such incidents, including systems and processes designed to reduce the impact of a security incident at a third-party vendor or customer, such measures cannot provide absolute security and may fail to operate as intended or be circumvented.circumvented, including by use of developing technologies such as artificial intelligence.

We depend on our senior management and other key personnel, including our President and CEO. We do not have “key person” life insurance policies. We also rely on other highly skilled personnel. Competition for qualified personnel in the industries in which we operate, as well as senior management, has historically been intense. For example, we experience significant competition in the technology industry, particularly for software engineers, computer scientists, and other technical staff.staff (including for artificial intelligence and machine learning technologies). In addition, changes we make to our current and future work environments may not meet the needs or expectations of our employees or may be perceived as less favorable compared to other companies’ policies, which could negatively impact our ability to hire and retain qualified personnel. The loss of any of our executive officers or other key employees, the failure to successfully transition key roles, or the inability to hire, train, retain, and manage qualified personnel, could harm our business.

We have significant suppliers, including content and technology licensors, and in some cases, limited or single-sources of supply, that are important to our sourcing, services, manufacturing, and any related ongoing servicing of merchandise and content. We do not have long-term arrangements with most of our suppliers to guarantee availability of merchandise, content, components, or services, particular payment terms, or the extension of credit limits. Decisions by our current suppliers to limit or stop selling or licensing merchandise, content, components, or services to us on acceptable terms, or delay delivery, including as a result of one or more supplier bankruptcies due to poor economic conditions, as a result of natural or human-caused disasters (including public health crises) or, geopolitical events, labor and trade disputes, or for other reasons, may result in our being unable to procure alternatives from other suppliers in a timely and efficient manner and on acceptable terms, or at all. For example, we rely on a limited group of suppliers for semiconductor products, including products related to artificial intelligence infrastructure such as graphics processing units. Constraints on the availability of these products could adversely affect our ability to develop and operate artificial intelligence technologies, products, or services. In addition, violations by our suppliers or other vendors of applicable laws, regulations, contractual terms, intellectual property rights of others, or our Supply Chain Standards, as well as products or practices regarded as unethical, unsafe, or hazardous, could expose us to claims, damage our reputation, limit our growth, and negatively affect our operating results.

We provide physical, e-commerce, and omnichannel retail, cloud services, and other services to businesses through commercial agreements, strategic alliances, and business relationships. Under these agreements, we provide web services, technology, fulfillment, computing, digital storage, and other services, as well as enable sellers to offer products or services through our stores. These arrangements are complex and require substantial infrastructure capacity, personnel, and other resource commitments, which may limit the amount of business we can service. We may not be able to implement, maintain, and develop the components of these commercial relationships, which may include web services, fulfillment, customer service, inventory management, tax collection, payment processing, hardware, content, and third-party software, and engaging third parties to perform services. The amount of compensation we receive under certain of our commercial agreements is partially dependent on the volume of the other company’s sales. Therefore, when the other company’s offerings are not successful, the compensation we receive may be lower than expected or the agreement may be terminated. Moreover, we may not be able to enter into additional or alternative commercial relationships and strategic alliances on favorable terms. We also may be subject to claims from businesses to which we provide these services if we are unsuccessful in implementing, maintaining, or developing these services.

In addition to risks described elsewhere in this Item 1A relating to fulfillment network and inventory optimization by us and third parties, we are exposed to significant inventory risks that may adversely affect our operating results as a result of seasonality, new product launches, rapid changes in product cycles and pricing,pricing (including as a result of tariff policy changes), defective merchandise, changes in customer demand and consumer spending patterns, changes in consumer tastes with respect to our products, spoilage, and other factors. We endeavor to accurately predict these trends and avoid overstocking or understocking products we manufacture and/or sell. Demand for products, however, can change significantly between the time inventory or components are ordered and the date of sale. In addition, when we begin selling or manufacturing a new product or offering a new service, it may be difficult to establish vendor relationships, determine appropriate product or component selection, and accurately forecast demand. The acquisition of certain types of inventory or components requires significant lead-time and prepayment and they may not be returnable. We carry a broad selection and significant inventory levels of certain products, such as consumer electronics, and at times we are unable to sell products in sufficient quantities or to meet demand during the relevant selling seasons. Any one of the inventory risk factors set forth above may adversely affect our operating results.

•conditions or trends in the internetinternet, other technologies including artificial intelligence, and the industry segments we operate in;

•fluctuations in the stock market in general and market prices for internet-relatedtechnology-related companies in particular;

We are subject to general business regulations and laws, as well as regulations and laws specifically governing the internet, physical, e-commerce, and omnichannel retail, digital content, web services, electronic devices, advertising, artificial intelligence technologies and services, satellite communications services, healthcare, and other products and services that we offer or sell. These regulations and laws cover taxation, privacy, data use, data protection, data security, data localization, network security, consumer protection, pricing, content, copyrights, distribution, transportation, communications, electronic device certification, electronic waste, energy consumption, environmental and climate-related regulation, electronic contracts and other communications, competition, employment, trade and protectionist measures, web services, the provision of online payment services, registration, licensing, and information reporting requirements, insurance, unencumbered internet access to our services or access to our facilities, the design and operation of websites, health, safety, and sanitation standards, the characteristics, legality, and quality of products and services, product labeling, the commercial operation of unmanned aircraft systems, healthcare, and other matters. It is not clear how existing laws governing issues such as property ownership, libel, privacy, data use, data protection, data security, data localization, network security, and consumer protection apply to aspects of our operations such as the internet, e-commerce, digital content, web services, electronic devices, advertising, artificial intelligence technologies and services, satellite communications services, and healthcare. A large number of jurisdictions regulate our operations, and the extent, nature, and scope of such regulations is evolving and expanding as the scope of our businesses expand. We are regularly subject to formal and informal reviews, investigations, and other proceedings by governments and regulatory authorities under existing laws, regulations, or interpretations or pursuing new and novel approaches to regulate our operations. For example, we face a number of open investigations based on claims that aspects of our operations infringe competitioncompetition-related or consumer protection rules,rules or regulations, including aspects of Amazon’s operation of its stores, including its fulfillment network and Prime, and certain aspects of AWS’s offering of cloud services. We strongly dispute these claims and intend to defend ourselves vigorously in these investigations. Similarly, we face investigations under a growing patchwork of laws and regulations governing the collection, use, and disclosure of data, the interpretation of which continues to evolve, leading to uncertainty about how regulators will view our privacy practices. In addition, regulators and lawmakers are increasingly focused on controlling additional aspects of the operations of technology companies and companies they have characterized to be online “gatekeepers” through the application of existing regulations and laws and the adoption of new regulations and laws, which increases our compliance costs and limits the operation of our business. Unfavorable regulations, laws, decisions, or interpretations by government or regulatory authorities applying those laws and regulations, or inquiries, investigations, or enforcement actions threatened or initiated by them, could cause us to incur substantial costs, expose us to unanticipated civil and criminal liability or penalties (including substantial monetary fines), diminish the demand for, or availability of, our products and services, increase our cost of doing business, require us to change our business practices in a manner materially adverse to our business, damage our reputation, impede our growth, or otherwise have a material effect on our operations. The media, political, and regulatory scrutiny we face, which may continue to increase, amplifies these risks.

As an innovative company offering a wide range of consumer and business products and services around the world, we are regularly subject to actual and threatened claims, litigation, reviews, investigations, and other proceedings, including proceedings by governments and regulatory authorities, involving a wide range of issues, including patent and other intellectual property matters, taxes, labor and employment (including the characterization of delivery drivers), competition and antitrust, privacy, data use, data protection, data security, data localization, network security, consumer protection, commercial disputes, goods and services offered by us and by third parties (including artificial intelligence technologies and services), healthcare, and other matters. The number and scale of these proceedings have increased over time as our businesses have expanded in scope and geographic reach, as our products, services, and operations have become more complex and available to, and used by, more people, and as governments and regulatory authorities seek to regulate us on a pre-emptive basis. For example, we are litigating a number of matters alleging price fixing, monopolization, and consumer protection claims, including those brought by state attorneys general and the Federal Trade Commission. Any of these types of proceedings can have an adverse effect on us because of legal costs, disruption of our operations, diversion of management resources, negative publicity, and other factors. The outcomes of these matters are inherently unpredictable and subject to significant uncertainties. Determining legal reserves or possible losses from such matters involves judgment and may not reflect the full range of uncertainties and unpredictable outcomes. Until the final resolution of such matters, we may be exposed to losses in excess of the amount recorded, and such amounts could be material. Should any of our estimates and assumptions change or prove to have been incorrect, it could have a material effect on our business, consolidated financial position, results of operations, or cash flows. In addition, it is possible that a resolution of one or more such proceedings, including as a result of a settlement, could involve licenses, sanctions, consent decrees, or orders requiring us to make substantial future payments, preventing us from offering certain products or services, requiring us to change our business practices in a manner materially adverse to our business, requiring development of non-infringing or otherwise altered products or technologies, damaging our reputation, or otherwise having a material effect on our operations.

Some of the products we sell or manufacture expose us to product liability or food safety claims relating to personal injury or illness, death, or environmental or property damage, and can require product recalls or other actions. Third parties who sell products using our services and stores also expose us to product liability claims. Additionally, under our A-to-z Guarantee, we may reimburse customers for certain product liability claims up to certain limits in these situations, and as our third-party seller sales grow, the cost of this program will increase and could negatively affect our operating results. Although we maintain liability insurance, we cannot be certain that our coverage will be adequate for liabilities actually incurred or that insurance will continue to be available to us on economically reasonable terms, or at all. Although we impose contractual terms on sellers that are intended to prohibit sales of certain type of products, we may not be able to detect, enforce, or collect sufficient damages for breaches of such agreements. In addition, some of our agreements with our vendors and sellers do not indemnify us from product liability.

We are subject to a variety of taxes and tax collection obligations in the U.S. (federal and state) and numerous foreign jurisdictions. We may recognize additional tax expense and be subject to additional tax liabilities, including other liabilities for tax collection obligations due to changes in laws, regulations, administrative practices, principles, and interpretations related to tax, including changes to the global tax framework, competition, and other laws and accounting rules in various jurisdictions. Such changes could come about as a result of economic, political, and other conditions. An increasing number of jurisdictions are considering or have adopted laws or administrative practices that impose new tax measures, including revenue-based taxes, targeting online commerce and the remote selling of goods and services. These include new obligations to withhold or collect sales, consumption, value added, or other taxes on online marketplaces and remote sellers, or other requirements that may result in liability for third party obligations. For example, non-U.S. jurisdictions have proposed or enacted taxes on online advertising and marketplace service revenues. Proliferation of these or similar unilateral tax measures may continue unless broader international tax reform is implemented. In addition, the European Union and other countries (including those in which we operate) have enacted or have committed tomay enact global minimum taxes, which may increase our tax expense.

We are also subject to tax controversies in various jurisdictions that can result in tax assessments against us. Developments in an audit, investigation, or other tax controversy can have a material effect on our operating results or cash flows in the period or periods for which that development occurs, as well as for prior and subsequent periods. Due to the inherent complexity and uncertainty of these matters, interpretations of certain tax laws by authorities, and judicial, administrative, and regulatory processes in certain jurisdictions, the final outcome of any such controversy may be materially different from our expectations. For example, the Indian tax authority has asserted that tax applies to cloud services fees paid to Amazon in the U.S. We are contesting this position; however, if this matter is adversely resolved, we may be required to pay additional amounts with respect to current and prior periods and our taxes in the future could increase. We regularly assess the likelihood of an adverse outcome resulting from these proceedings to determine the adequacy of our tax accruals. Although we believe our tax estimates are reasonable, the final outcome of audits, investigations, and any other tax controversies could be materially different from our historical tax accruals.

This Annual Report on Form 10-K includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects, or future results of operations or financial position, made in this Annual Report on Form 10-K are forward-looking. We use words such as anticipates, believes, expects, future, intends, and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results and outcomes could differ materially for a variety of reasons, including, among others, fluctuations in foreign exchange rates,rates and energy prices, changes in global economic conditionsconditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending, inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, the amount that Amazon.com invests in new business opportunities and the timing of those investments, the mix of products and services sold to customers, the mix of net sales derived from products as compared with services, the extent to which we owe income or other taxes, competition, management of growth, potential fluctuations in operating results, international growth and expansion, the outcomes of claims, litigation, government investigations, and other proceedings, fulfillment, sortation, delivery, and data center optimization, risks of inventory management, variability in demand, the degree to which we enter into, maintain, and develop commercial agreements, proposed and completed acquisitions and strategic transactions, payments risks, and risks of fulfillment throughput and productivity. In addition, global economic and geopolitical conditions and additional or unforeseen circumstances, developments, or events may give rise to or amplify many of these risks. These risks and uncertainties, as well as other risks and uncertainties that could cause our actual results or outcomes to differ significantly from management’s expectations, are described in greater detail in Item 1A of Part I, “Risk Factors.”

Our financial focus is on long-term, sustainable growth in free cash flows.flow. Free cash flowsflow areis driven primarily by increasing operating income and efficiently managing accounts receivable, inventory, accounts payable, and cash capital expenditures, including our decision to purchase or lease property and equipment. Increases in operating income primarily result from increases in sales of products and services and efficiently managing our operating costs, partially offset by investments we make in longer-term strategic initiatives, including capital expenditures focused on improving the customer experience. To increase sales of products and services, we focus on improving all aspects of the customer experience, including lowering prices, improving availability, offering faster delivery and performance times, increasing selection, producing original content, increasing product categories and service offerings, expanding product information, improving ease of use, improving reliability, and earning customer trust. See “Results of Operations — Non-GAAP Financial Measures” below for additional information on our non-GAAP free cash flowsflow financial measures.measure.

We seek to turn inventory quickly and collect from consumers before our payments to vendors and sellers become due. Because consumers primarily use credit cards in our stores, our receivables from consumers settle quickly. We expect variability in inventory turnover over time since it is affected by numerous factors, including our product mix, the mix of sales by us and by third-party sellers, our continuing focus on in-stock inventory availability and selection of product offerings, supply chain disruptions and resulting vendor lead times, our investment in new geographies and product lines, and the extent to which we choose to utilize third-party fulfillment providers. We also expect some variability in accounts payable days over time since they are affected by several factors, including the mix of product sales, the mix of sales by third-party sellers, the mix

time since they are affected by several factors, including the mix of product sales, the mix of sales by third-party sellers, the mix of suppliers, seasonality, and changes in payment and other terms over time, including the effect of balancing pricing and timing of payment terms with suppliers.

We expect spending in technology and infrastructure will increase over timetime, which can negatively impact short-term free cash flow, as we add computer scientists, designers, softwareinfrastructure and hardwareemployees, engineers,including to support our artificial intelligence and merchandisingmachine employees.learning initiatives, to support long-term growth. Our technology and infrastructure investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations. We seek to invest efficiently in several areas of technology and infrastructure, including AWS, and expansion of new and existing product categories and service offerings, as well as in infrastructure to enhance the customer experience and improve our process efficiencies. We believe that advances in technology, specifically the speed and reduced cost of processing power, data storage and analytics, improved wireless connectivity, and the practical applications of artificial intelligence and machine learning, will continue to improve users’ experience on the internet and increase its ubiquity in people’s lives. To best take advantage of these continued advances in technology, we are investing in AWS, which offers a broad set of on-demand technology services, including compute, storage, database, analytics, and machine learning, and other services to developers and enterprises of all sizes. We are also investing in initiatives to build and deploy innovative and efficient software and electronic devices as well as other initiatives including the development of a satellite network for global broadband service and autonomous vehicles for ride-hailing services.

Inventories, consisting of products available for sale, are primarily accounted for using the first-in first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of December 31, 2024,2025, we would have recorded an additional cost of sales of approximately $365$405 million.

Cash provided by (used in) operating activities was $84.9$115.9 billion and $115.9$139.5 billion in 20232024 and 2024.2025. Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments. Cash received from our customers and other activities generally corresponds to our net sales. The increase in operating cash flow in 2024,2025, compared to the prior year, was due to an increase in net income (loss), excluding non-cash expenses, and changes in working capital. Working capital at any specific point in time is subject to many variables, including variability in demand, inventory management and category expansion, the timing of cash receipts and payments, customer and vendor payment terms, and fluctuations in foreign exchange rates.

Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold improvements, incentives received from property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash provided by (used in) investing activities was $(49.894.3) billion and $(94.3142.5) billion in 20232024 and 2024,2025, with the variability caused primarily by purchases, sales, and maturities of marketable securities and cash capital expenditures. Cash capital expenditures were $48.1$77.7 billion, and $77.7$128.3 billion in 20232024 and 2024,2025, which primarily reflect investments in technology infrastructure (the majority of which is to support AWS business growth) and in additional capacity to support our fulfillment network.network, Weboth of which we expect cash capital expenditures to increase in 2025, primarily driven by investments in technology infrastructure.2026. We made cash payments, net of acquired cash, related to acquisition and other investment activity of $5.8$7.1 billion and $7.1$3.8 billion in 20232024 and 2024.2025, Wewhich fundedprimarily thereflect acquisition of 1Life Healthcare, Inc. (One Medical)investments in 2023convertible withnotes cashfrom onAnthropic, hand.PBC In(“Anthropic”), Q3including 2023,$2.7 billion we invested $1.25 billion in a convertible note from Anthropic, PBC. In Q1 2024, we invested $2.75 billion in a second convertible note. In Q4 2024, we entered into an agreement and invested $1.3 billion in a third convertible note, and will invest an additional $2.7 billion by Q4 2025.

Cash provided by (used in) financing activities was $(15.911.8) billion and $(11.8)$9.7 billion in 20232024 and 2024.2025. Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term-debt of $18.1$5.1 billion and $5.1$25.0 billion in 20232024 and 2024.2025. Cash outflows from financing activities resulted from payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $34.0$17.0 billion and $17.0$15.3 billion in 20232024 and 2024.2025. Property and equipment acquired under finance leases was $642$854 million and $854$2.9 millionbillion in 20232024 and 2024.2025.

As of December 31, 20232024 and 2024,2025, restricted cash, cash equivalents, and marketable securities were $503$3.5 millionbillion and $3.5$3.3 billion. See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 6 — Debt” and “Financial Statements and Supplementary Data — Note 7 — Commitments and Contingencies” for additional discussion of our principal contractual commitments, as well as our pledged assets. Additionally, we have purchase obligations and open purchase orders, including for inventory and capital expenditures, that support normal operations and are primarily due in the next twelve months. These purchase obligations and open purchase orders are generally cancellable in full or in part through the contractual provisions.

We believe that cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, as well as our borrowing arrangements, will be sufficient to meet our anticipated operating cash needs for at least the next twelve months. However, any projections of future cash needs and cash flows are subject to substantial uncertainty. See Item 1A of Part I, “Risk Factors.” We continually evaluate opportunities to sell additional equity or debt securities, obtain credit facilities, obtain finance and operating lease arrangements, enter into financing obligations, repurchase common stock, pay dividends, or repurchase, refinance, or otherwise restructure our debtdebt, or access capital through other financing arrangements for strategic reasons or to further strengthen our financial position.

Macroeconomic factors, including changes in inflation and interest rates, resource and supply volatility, global economic and geopolitical developments, including unpredictable shifts in global tariff and trade policies, and the development and adoption of technologies and services, including artificial intelligence, have direct and indirect impacts on our results of operations that are difficult to isolatepredict, isolate, and quantify. These could affect customer demand for our products and services, our ability to predictforecast growth needs, expenses, and the benefits we gain from new technologies. Further, we expect to continue making additional investments in our artificial intelligence initiatives. We expect some or all of themthese factors to continue to impact our results of operations into Q1 2025.2026.

Sales increased 11%12% in 2024,2025, compared to the prior year. Changes in foreign exchange rates reducedincreased net sales by $2.3$4.4 billion in 2024.2025. For a discussion of the effect of foreign exchange rates on sales growth, see “Effect of Foreign Exchange Rates” below.

International sales increased 9%13% in 2024,2025, compared to the prior year. The sales growth primarily reflects increased unit sales, including sales by third-party sellers, advertising sales, and subscription services. Increased unit sales were driven largely by our continued focus on price, selection, and convenience for our customers, including from our fast shipping offers. Changes in foreign exchange rates reduced International net sales by $1.8 billion in 2024.

The increase in cost of sales in 2024,2025, compared to the prior year, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by fulfillmentoperational network efficiencies, including lower transportation costs.efficiencies. Changes in foreign exchange rates reducedincreased cost of sales by $1.7$2.8 billion in 2024.2025.

Fulfillment costs primarily consist of those costs incurred in operating and staffing our North America and International fulfillment centers, physical stores, and customer service centers and payment processing costs. While AWS payment processing and related transaction costs are included in “Fulfillment,” AWS costs are primarily classified as “Technology and infrastructure.” Fulfillment costs as a percentage of net sales may vary due to several factors, such as payment processing and related transaction costs, our level of productivity and accuracy, changes in volume, size, and weight of units received and fulfilled, the extent to which third-party sellers utilize Fulfillment by Amazon services, timing of fulfillment network and physical store expansion, the extent we utilize fulfillment services provided by third parties, mix of products and services sold, and our ability to affect customer service contacts per unit by implementing improvements in our operations and enhancements to our customer self-service features. Additionally, sales by our sellers have higher payment processing and related transaction costs as a percentage of net sales compared to our retail sales because payment processing costs are based on the gross purchase price of underlying transactions.

The increase in fulfillment costs in 2024,2025, compared to the prior year, is primarily due to increased sales and investments in our fulfillment network, partially offset by fulfillment networkoperational efficiencies. Changes in foreign exchange rates reducedincreased fulfillment costs by $223$609 million in 2024.2025.

We seek to invest efficiently in numerous areas of technology and infrastructure so we may continue to enhance the customer experience and improve our process efficiency through rapid technology developments, while operating at an ever increasing scale. Our technology and infrastructure investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations. We expect spending in technology and infrastructure to increase over time as we continue to add employeesinfrastructure and infrastructure.employees, including to support our artificial intelligence and machine learning initiatives. These costs are allocated to segments based on usage. The increase in technology and infrastructure costs in 2024,2025, compared to the prior year, is primarily due to an increase in spending on infrastructure, partially offset by decreased payroll and related costs associated with technical teams responsible for expanding our existing products and services and initiatives to introduce new products and service offerings and a reduction inincluding depreciation and amortization expense from our change in the estimated useful life of our servers.amortization. Changes in foreign exchange rates reducedincreased technology and infrastructure costs by $244$312 million in 2024.2025. We currently expense the majority of the costs associated with the development of our satellite network for global broadband service (including production, launch, and payroll costs, and launch services deposits upon launch). We will capitalize certain of these costs once the service achieves commercial viability, including sales to customers.

The decreaseincrease in sales and marketing costs in 2024,2025, compared to the prior year, is primarily due to decreasedincreased payroll and related expenses for personnel engaged in marketing and selling activities, partially offset by increasedthird-party advertising expenses. Changes in foreign exchange rates reducedincreased sales and marketing costs by $263$283 million in 2024.2025.

The decrease in generalGeneral and administrative costs in 2024,2025 did not significantly change compared to the prior year, is primarily due to a decrease in payroll and related expenses.year.

Operating Income (Loss)

Operating income (loss) by segment is as follows (in millions):

Operating income was $36.9$68.6 billion and $68.6$80.0 billion for 20232024 and 2024.2025. Operating income for 2025 includes charges of $2.5 billion we recorded in Q3 2025 related to the settlement of a lawsuit with the FTC and $2.7 billion, of which $1.8 billion was recorded in Q3 2025, of estimated severance costs primarily related to planned role eliminations. We believe that operating income is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services. For more information on the operating expenses that impact segment operating income, see “Operating Expenses” and the descriptions of operating expense line item changes on pages 25 to 27, and “Note 10 — Segment Information” on page 65.67.

The increase in North America operating income in 2024,2025, compared to the prior year, is primarily due to increased unit sales and increased advertising sales, partially offset by increased fulfillmentfulfillment, technology and shippinginfrastructure, shipping, and other operating costs. Changes in foreign exchange rates negatively impacted operating income by $204 million in 2025.

The increase in International operating income in 2024, as2025, compared to the operating loss in the prior year, is primarily due to increased unit sales and increased advertising sales, partially offset by increased shippingfulfillment and fulfillmentshipping costs. Changes in foreign exchange rates didpositively not significantly impactimpacted operating income by $903 million in 2024.2025.

The increase in AWS operating income in 2024,2025, compared to the prior year, is primarily due to increased sales, decreased payroll and related expenses, and a reduction in depreciation and amortization expense from our change in the estimated useful lives of our servers, partially offset by spending on technology infrastructure that was primarily driven by additional investments to support AWS business growth. Changes in foreign exchange rates positivelynegatively impacted operating income by $240$341 million in 2024.2025.

Our interest income was $2.9$4.7 billion and $4.7$4.4 billion during 20232024 and 2024,2025, primarily due to a decrease in prevailing rates, offset by a higher average balance of invested funds at prevailing rates.funds. We generally invest our excess cash in investment grade short- to intermediate-term marketable debt securities and AAA-rated money market funds. Our interest income corresponds with the average balance of invested funds based on the prevailing rates, which vary depending on the geographies and currencies in which they are invested.

Other income (expense), net was $938 million and $(2.3) billion and $15.2 billion during 20232024 and 2024.2025. The primary components of other income (expense), net are related to equity securities valuations and adjustments, equity warrant valuations, foreign currency, and foreignreclassification currency.adjustments Includedfor in other incomegains (expenselosses), on available-for-sale debt securities. The net loss of $(2.3) billion in 2023 and 2024 is aprimarily from the marketable equity securities valuation gain (loss) of $797 million and $(1.6) billion from our equity investment in Rivian.Rivian Automotive, Inc. (“Rivian”). The net gain of $15.2 billion in 2025 is primarily from an upward adjustment for observable changes in price relating to our nonvoting

We recorded a provision (benefit) for income taxes of $7.1$9.3 billion and $9.3$19.1 billion in 20232024 and 2024.2025. See Item 8 of Part II, “Financial Statements and Supplementary Data — Note 9 — Income Taxes” for additional information.

Regulation G, Conditions for Use of Non-GAAP Financial Measures, and other SEC regulations define and prescribe the conditions for use of certain non-GAAP financial information. Our measures of freeFree cash flowsflow and the effect of foreign exchange rates on our consolidated statements of operations meet the definition of non-GAAP financial measures.

Our financial focus is on long-term, sustainable growth in free cash flow. We provide a free cash flow measure because we believe it provides additional perspective on the impact of acquiring property and equipment with cash. Free cash flow is cash flow from operations reduced by “Purchases of property and equipment, net of proceeds from sales and incentives.” The following is a reconciliation of free cash flow to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for 20232024 and 20242025 (in millions):

All of these freeFree cash flowsflow measures havehas limitations as theyit omitomits certain components of the overall cash flow statement and dodoes not represent the residual cash flow available for discretionary expenditures. For example, these measures of free cash flowsflow dodoes not incorporate the portion of payments representing principal reductions of debt or cash payments for business acquisitions. Additionally, our mix of property and equipment acquisitions with cash or other financing options may change over time. Therefore, we believe it is important to view free cash flows measuresflow only as a complement to our entire consolidated statements of cash flows.

We provided guidance on February 6,5, 2025,2026, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of February 6,5, 2025,2026, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates,rates and energy prices, changes in global economic and geopolitical conditionsconditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part I, “Risk Factors.”

•Net sales are expected to be between $151.0$173.5 billion and $155.5$178.5 billion, or to grow between 5%11% and 9%15% compared with first quarter 2024.2025. This guidance anticipates ana unusually large, unfavorablefavorable impact of approximately $2.1 billion, or 150180 basis points,points from foreign exchange rates. Also, as a reminder, in first quarter 2024 the impact from Leap Year added approximately $1.5 billion in net sales.

•Operating income is expected to be between $14.0$16.5 billion and $18.0$21.5 billion, compared with $15.3$18.4 billion in first quarter 2024.2025. This guidance includes approximately $1 billion of higher year-over-year Amazon Leo costs as we scale in 2026, as well as investment in quick commerce and even sharper prices in our international stores business.

The results of operations of, and certain of our intercompany balances associated with, our international stores and product and service offerings are exposed to foreign exchange rate fluctuations. Due to these fluctuations, operating results may differ materially from expectations, and we may record significant gains or losses on the remeasurement of intercompany balances. As we have expanded our international operations, our exposure to exchange rate fluctuations has increased. We also hold cash equivalents and/or marketable securities in foreign currencies such as British Pounds, Canadian Dollars, Euros, and Japanese Yen.Yen, and issue notes in foreign currencies. When the U.S. Dollar strengthens compared to these currencies, cash equivalents, and marketable securities balances, and foreign-denominated note balances and payments, when translated, may be materially less than expected and vice versa.

Inventories, consisting of products available for sale, are primarily accounted for using the first-infirst-in, first-out method, and are valued at the lower of cost and net realizable value. This valuation requires us to make judgments, based on currently available information, about the likely method of disposition, such as through sales to individual customers, returns to product vendors, or liquidations, and expected recoverable values of each disposition category. These assumptions about future disposition of inventory are inherently uncertain and changes in our estimates and assumptions may cause us to realize material write-downs in the future. As a measure of sensitivity, for every 1% of additional inventory valuation allowance as of MarchJune 31,30, 2026, we would have recorded an additional cost of sales of approximately $385$405 million.

Our principal sources of liquidity are cash flows generated from operations and our cash, cash equivalents, and marketable securities balances, which, at fair value, were $123.0 billion and $143.1 billion as of December 31, 2025 and MarchJune 31,30, 2026. Amounts held in foreign currencies were $29.7 billion and $22.1$20.4 billion as of December 31, 2025 and MarchJune 31,30, 2026. Our foreign currency balances include British Pounds, Canadian Dollars, Euros, Indian Rupees, and Japanese Yen.

Cash provided by (used in) operating activities was $17.0$32.5 billion and $26.0$45.4 billion for Q1Q2 2025 and Q1Q2 2026, and $49.5 billion and $71.4 billion for the six months ended June 30, 2025 and 2026. Our operating cash flows result primarily from cash received from our consumer, seller, developer, enterprise, and content creator customers, and advertisers, offset by cash payments we make for products and services, employee compensation, payment processing and related transaction costs, operating leases, and interest payments. Cash received from our customers and other activities generally corresponds to our net sales. The increase in operating cash flow for the trailing twelve months ended MarchJune 31,30, 2026, compared to the comparable prior year period, was due to an increase in net income, excluding non-cash income and expenses, and changes in working capital. Working capital at any specific point in time is subject to many variables, including variability in demand, inventory management and category expansion, the timing of cash receipts and payments, customer and vendor payment terms, and fluctuations in foreign exchange rates.

Cash provided by (used in) investing activities corresponds with cash capital expenditures, including leasehold improvements, incentives received from property and equipment vendors, proceeds from asset sales, cash outlays for acquisitions, investments in other companies and intellectual property rights, and purchases, sales, and maturities of marketable securities. Cash provided by (used in) investing activities was $(29.839.4) billion and $(64.279.2) billion for Q1Q2 2025 and Q1Q2 2026, and $(69.2) billion and $(143.5) billion for the six months ended June 30, 2025 and 2026, with the variability caused primarily by purchases, sales, and maturities of marketable securities and cash capital expenditures. Cash capital expenditures were $24.3$31.4 billion and $43.2$53.1 billion during Q1Q2 2025 and Q1Q2 2026, and $55.6 billion and $96.3 billion for the six months ended June 30, 2025 and 2026, which primarily reflect investments in technology infrastructure (the majority of which is to support AWS business growth) and in additional capacity to support our fulfillment network, both of which we expect to increase in 2026. We did not have significant acquisition and other investment activity during Q1 2025. We made cash payments, net of acquired cash, related to acquisition and other investment activity of $15.4$1.7 billion and $24.4 billion during Q1Q2 2025 and Q2 2026, and $1.7 billion and $39.8 billion for the six months ended June 30, 2025 and 2026. In Q1Q2 2026,2025, we invested $15.0$1.3 billion in convertible notes from Anthropic. We invested $28.7 billion in OpenAI’s Series C Preferred Stock andfor enteredthe intosix anmonths equityended commitmentJune letter30, agreement2026, including $13.7 billion invested in Q2 2026. Subsequent to purchaseJune an30, additional2026, $35.0we billion of OpenAI’s Series C Preferred Stock, subject to certain conditions. We expect to fund this investment with cash on hand.funded

Cash provided by (used in) financing activities was $(472.5) millionbillion and $52.8$10.1 billion for Q1Q2 2025 and Q1Q2 2026, and $(2.6) billion and $62.9 billion for the six months ended June 30, 2025 and 2026. Cash inflows from financing activities resulted from proceeds from short-term debt, and other and long-term debt of $2.6$2.1 billion and $59.5$22.9 billion for Q1Q2 2025 and Q1Q2 2026, and $4.7 billion and $82.4 billion for the six months ended June 30, 2025 and 2026. We expect to undertake additional financing activities in 2026. Cash outflows from financing activities resulted from payments of short-term debt, and other, long-term debt, finance leases, and financing obligations of $2.6$4.6 billion and $6.7$12.8 billion for Q1Q2 2025 and Q1Q2 2026, and $7.2 billion and $19.5 billion for the six months ended June 30, 2025 and 2026. Property and equipment acquired under finance leases was $54$937 million and $1.6$563 billionmillion during Q1Q2 2025 and Q1Q2 2026, and $991 million and $2.1 billion for the six months ended June 30, 2025 and 2026.

We had no borrowings outstanding under the two unsecured revolving credit facilities or the commercial paper programs as of MarchJune 31,30, 2026. See Item 1 of Part I, “Financial Statements — Note 5 — Debt” for additional information.

Our U.S. taxable income is reduced by accelerated depreciation deductions and the amortization of previously capitalized research and development costs. U.S. tax rules provide for enhanced accelerated depreciation deductions by allowing the election of full expensing of qualified property, as well as various alternatives for amortizing previously capitalized research and development costs. The 2026 Notice, which applied retroactively to 2025, is expected to result in a significant decrease of 2024 and 2025 cash taxes paid. Cash paid for U.S. (federal and state) and foreign income taxes (net of refunds) totaled $877$4.8 millionbillion and $1.3$2.7 billion for Q1Q2 2025 and Q1Q2 2026, and $5.6 billion and $4.0 billion for the six months ended June 30, 2025 and 2026.

As of December 31, 2025 and MarchJune 31,30, 2026, restricted cash, cash equivalents, and marketable securities were $3.3 billion and $2.9$2.7 billion. See Item 1 of Part I, “Financial Statements — Note 4 — Commitments and Contingencies” and “Financial Statements — Note 5 — Debt” for additional discussion of our principal contractual commitments, as well as our pledged assets. Additionally, we have purchase obligations and open purchase orders, including for inventory and capital expenditures, that support normal operations and are primarily due in the next twelve months. These purchase obligations and open purchase orders are generally cancellable in full or in part through the contractual provisions.

Net sales include product and service sales. Product sales represent revenue from the sale of products and related shipping fees and digital media content where we record revenue gross. Service sales primarily represent third-party seller fees, which includesinclude commissions and any related fulfillment and shipping fees, AWS sales, advertising services, Amazon Prime membership fees, and certain digital media content subscriptions. Net sales information is as follows (in millions):

Sales increased 17%20% in Q1Q2 2026, and 18% for the six months ended June 30, 2026 compared to the comparable prior year period.periods. Changes in foreign exchange rates did not significantly impact net sales for Q2 2026, but increased net sales by $2.9$3.0 billion for Q1the six months ended June 30, 2026. For a discussion of the effect of foreign exchange rates on sales growth, see “Effect of Foreign Exchange Rates” below.

North America sales increased 12%16% in Q1Q2 2026, and 14% for the six months ended June 30, 2026 compared to the comparable prior year period.periods. The sales growth primarily reflects increased unit sales, including sales by third-party sellers, advertising sales, and subscription services. Increased unit sales were driven largely by our continued focus on price, selection, and convenience for our customers, including from our fast shipping offers. Changes in foreign exchange rates increased North America net sales by $346 million for Q1 2026.

International sales increased 19%15% in Q1Q2 2026, and 17% for the six months ended June 30, 2026 compared to the comparable prior year period.periods. The sales growth primarily reflects increased unit sales, including sales by third-party sellers, advertising sales, and subscription services. Increased unit sales were driven largely by our continued focus on price, selection, and convenience for our customers, including from our fast shipping offers. Changes in foreign exchange rates did not significantly impact International net sales for Q2 2026, but increased International net sales by $2.5$2.4 billion for Q1the six months ended June 30, 2026.

AWS sales increased 28%37% in Q1Q2 2026, and 33% for the six months ended June 30, 2026 compared to the comparable prior year period.periods. The sales growth primarily reflects increased customer usage, partially offset by pricing changes primarily driven by long-term customer contracts.

The increase in cost of sales in Q1Q2 2026 and for the six months ended June 30, 2026, compared to the comparable prior year period,periods, is primarily due to increased product and shipping costs resulting from increased sales, partially offset by operational efficiencies. Cost of sales in Q2 2026 includes tariff refunds received under the IEEPA. Changes in foreign exchange rates did not significantly impact cost of sales for Q2 2026, but increased cost of sales by $1.8 billion for Q1the six months ended June 30, 2026.

Shipping costs were $22.5 billion and $25.7 billion in Q1 2025 and Q1 2026. Shipping costs to receive products from our suppliers are included in our inventory and recognized as cost of sales upon sale of products to our customers. We expect our cost of shipping to continue to increase to the extent our customers accept and use our shipping offers at an increasing rate, we use more expensive shipping methods, and we offer additional services. We seek to mitigate costs of shipping over time in part through achieving higher sales volumes, optimizing our fulfillment network, negotiating better terms with our suppliers, and achieving better operating efficiencies. We believe that offering low prices to our customers is fundamental to our future success, and one way we offer lower prices is through shipping offers.

The increase in fulfillment costs in Q1Q2 2026 and for the six months ended June 30, 2026, compared to the comparable prior year period,periods, is primarily due to increased sales and investments in our fulfillment network, partially offset by operational efficiencies. Changes in foreign exchange rates did not significantly impact fulfillment costs for Q2 2026, but increased fulfillment costs by $478$523 million for Q1the six months ended June 30, 2026.

We seek to invest efficiently in numerous areas of technology and infrastructure so we may continue to enhance the customer experience and improve our process efficiency through rapid technology developments, while operating at an ever increasing scale. Our technology and infrastructure investment and capital spending projects often support a variety of product and service offerings due to geographic expansion and the cross-functionality of our systems and operations. We expect spending in technology and infrastructure to increase over time as we continue to add infrastructure and employees, including to support our artificial intelligence and machine learning initiatives. These costs are allocated to segments based on usage. The increase in technology and infrastructure costs in Q1Q2 2026 and for the six months ended June 30, 2026, compared to the comparable prior year period,periods, is primarily due to an increase in spending on infrastructure, including depreciation and amortization. Changes in foreign exchange rates did not significantly impact technology and infrastructure costs for Q2 2026, but increased technology and infrastructure costs by $374$427 million for Q1the six months ended June 30, 2026. Technology and infrastructure costs in Q2 2026 include net unrealized gains for energy contracts that are subject to derivative accounting, primarily related to AWS. Fair value measurements for these contracts do not impact cash flows but may be material to technology and infrastructure costs in future periods due to the duration of these contracts and volatility inherent in valuation methods. We currently expense the majority of the costs associated with the development of our satellite network for global broadband service (including production, launch, and payroll costs, and launch services deposits upon launch). We will capitalize certain of these costs once the service achieves commercial viability, including sales to customers. See Item 7 of Part II, “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Overview” of our 2025 Annual Report on Form 10-K for a discussion of how management views advances in technology and the importance of innovation.

Sales and marketing costs in Q1Q2 2026 and for the six months ended June 30, 2026 did not significantly change compared to the comparable prior year period.periods. Changes in foreign exchange rates did not significantly impact sales and marketing costs for Q2 2026, but increased sales and marketing costs by $233$293 million for Q1the six months ended June 30, 2026.

GeneralThe decrease in general and administrative costs in Q1Q2 2026 didand notfor significantlythe changesix months ended June 30, 2026, compared to the comparable prior year period.periods, is primarily due to a decrease in payroll and related expenses.

Other operating expense (income), net was $308$199 million and $447$90 million for Q1Q2 2025 and Q1Q2 2026, and $507 million and $537 million for the six months ended June 30, 2025 and 2026, and was primarily related to charges associated with damaged data centers in the Middle East in Q1 2026, asset impairments,impairments and the amortization of intangible assets.

Operating income increased from $18.4$19.2 billion in Q1Q2 2025 to $23.9$27.5 billion in Q1Q2 2026, and increased from $37.6 billion for the six months ended June 30, 2025 to $51.3 billion for the six months ended June 30, 2026. We believe that operating income is a more meaningful measure than gross profit and gross margin due to the diversity of our product categories and services. For more information on the operating expenses that impact segment operating income, see “Operating Expenses” and the descriptions of operating expense line item changes on pages 2930 to 31,32, and “Note 8 — Segment Information” on page 21.22.

The increase in North America operating income in Q1Q2 2026 and for the six months ended June 30, 2026, compared to the comparable prior year period,periods, is primarily due to increased unit sales and increased advertising sales, partially offset by increased shipping, fulfillment, and technology and infrastructure costs.

The increase in International operating income in Q1Q2 2026 and for the six months ended June 30, 2026, compared to the comparable prior year period,periods, is primarily due to increased unit sales and increased advertising sales, partially offset by increased shipping and fulfillment costs. Changes in foreign exchange rates did not significantly impact operating income for Q2 2026, but positively impacted operating income by $347$304 million for Q1the six months ended June 30, 2026.

The increase in AWS operating income in Q1Q2 2026 and for the six months ended June 30, 2026, compared to the comparable prior year period,periods, is primarily due to increased sales, partially offset by spending on technology infrastructure that was primarily driven by additional investments to support AWS business growth. Changes in foreign exchange rates did not significantly impact operating income for Q2 2026, but negatively impacted operating income by $339$395 million for Q1the six months ended June 30, 2026.

Our interest income was $1.1 billion and $1.3 billion during Q1Q2 2025 and Q1Q2 2026, and $2.2 billion and $2.4 billion for the six months ended June 30, 2025 and 2026, primarily due to a decrease in prevailing rates, offset by a higher average balance of invested funds.funds, offset by a decrease in prevailing rates. We generally invest our excess cash in investment grade short- to intermediate-term marketable debt securities and AAA-rated money market funds. Our interest income corresponds with the average balance of invested funds based on the prevailing rates, which vary depending on the geographies and currencies in which they are invested.

Interest expense was $541$516 million and $800$1.3 millionbillion during Q1Q2 2025 and Q1Q2 2026, and $1.1 billion and $2.1 billion for the six months ended June 30, 2025 and 2026, and was primarily related to debtdebt, including new issuances of Notes, and finance leases. See Item 1 of Part I, “Financial Statements — Note 3 — Leases and Note 5 — Debt” for additional information.

Other income (expense), net was $2.7$1.1 billion and $15.6$53.4 billion during Q1Q2 2025 and Q1Q2 2026, and $3.9 billion and $69.1 billion for the six months ended June 30, 2025 and 2026. The primary components of other income (expense), net are related to equity securities valuations and adjustments, equity warrant valuations, foreign currency, and reclassification adjustments for gains (losses) on available-for-sale debt securities. The net gain of $2.7$1.1 billion in Q1Q2 2025 is primarily from equity warrant valuations. The net gain of $3.9 billion for the six months ended June 30, 2025 is primarily from the reclassification adjustment for the gain on available-for-sale debt securities from the portion of our convertible notes investments in Anthropic that were converted to nonvoting preferred stock during Q1the three months ended March 31, 2025. The net gain of $15.6$53.4 billion in Q1Q2 2026 and $69.1 billion for the six months ended June 30, 2026 is primarily from an upward adjustmentadjustments for observable changes in price relating to our nonvoting preferred stock in Anthropic and the reclassification adjustment for the gains on available-for-sale debt securities from the portions of our convertible notes investments in Anthropic that were converted to nonvoting preferred stock during the three months ended March 31, 2026.

Our income tax provision for the threesix months ended MarchJune 31,30, 2025 was $4.6$7.2 billion, which included $559$753 million of net discrete tax expense.benefits primarily attributable to excess tax benefits from stock-based compensation. Our income tax provision for the threesix months ended MarchJune 31,30, 2026 was $9.6$27.8 billion, which included $4.1$15.9 billion of net discrete tax expense primarily attributable to the netupward gainsadjustments fromto our investments in Anthropic. See Item 1 of Part I, “Financial Statements — Note 7 — Income Taxes” for additional information.

Our financial focus is on long-term, sustainable growth in free cash flow. We provide a free cash flow measure because we believe it provides additional perspective on the impact of acquiring property and equipment with cash. Free cash flow is cash flow from operations reduced by “Purchases of property and equipment, net of proceeds from sales and incentives.” The following is a reconciliation of free cash flow to the most comparable GAAP cash flow measure, “Net cash provided by (used in) operating activities,” for the trailing twelve months ended MarchJune 31,30, 2025 and 2026 (in millions):

Free cash flow has limitations as it omits certain components of the overall cash flow statement and does not represent the residual cash flow available for discretionary expenditures. For example, free cash flow does not incorporate the portion of payments representing principal reductions of debt or cash payments for business acquisitions. Additionally, our mix of property and equipment acquisitions with cash or other financing options may change over time. Therefore, we believe it is important to view free cash flow only as a complement to our entire consolidated statements of cash flows.

We provided guidance on AprilJuly 29,30, 2026, in our earnings release furnished on Form 8-K as set forth below. These forward-looking statements reflect Amazon.com’s expectations as of AprilJuly 29,30, 2026, and are subject to substantial uncertainty. Our results are inherently unpredictable and may be materially affected by many factors, such as fluctuations in foreign exchange rates and energy prices, changes in global economic and geopolitical conditions, tariff and trade policies, resource and supply volatility, including for memory chips, and customer demand and spending (including the impact of recessionary fears), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet, online commerce, cloud services, and new and emerging technologies, as well as those outlined in Item 1A of Part II, “Risk Factors.”

SecondThird Quarter 2026 Guidance

•Net sales are expected to be between $194.0$197.0 billion and $199.0$202.0 billion, or to grow between 16%9% and 19%12% compared with secondthird quarter 2025. Excluding the impact of Prime Day in both 2025 and 2026, third quarter 2026 year-over-year growth would be nearly 400 basis points higher. This guidance anticipates an unfavorable impact of approximately 1080 basis points from foreign exchange rates.

•Operating income is expected to be between $20.0$22.5 billion and $24.0$26.5 billion, compared with $19.2$17.4 billion in secondthird quarter 2025.

•This guidance assumes, among other things, no impact from energy derivative contract remeasurements, and that no additional business acquisitions, restructurings, or legal settlements are concluded.