Verizon signs $2 billion AWS AI deal and keeps its capital spending budget unchanged
Verizon signs $2 billion AWS AI deal and keeps its capital spending budget unchanged
Verizon signed an AI infrastructure agreement worth more than $2 billion with AWS. It kept 2026 capital spending at $16.0 billion to $16.5 billion, which already includes AI Connect. After the lowest quarterly spending since early 2025, the fourth quarter must rise 10 to 23 percent.
Verizon must raise fourth quarter capex 10 to 23 percent to stay inside its 2026 budget. It signed a $2 billion plus agreement with Amazon Web Services on Monday and kept capex at $16.0 billion to $16.5 billion.
The starting point is $3.7 billion in the third quarter, the lowest since early 2025. Verizon's third quarter release says the agreement "establishes a commercial framework to scale distributed compute" for AI workloads.
The same release keeps capital spending at $16.0 billion to $16.5 billion, "inclusive of success-based investments for AI Connect". Chief executive Dan Schulman said "technology leaders are choosing our fiber network to power the next generation of AI infrastructure". The budget is where that claim gets tested, because the range already includes AI Connect.
The fourth quarter spending requirement
Third quarter capex of $3.7 billion is the lowest of the seven quarters reported since the start of 2025. Verizon's quarterly series shows $4.2 billion in the first quarter and $4.0 billion in the second. The third quarter is 14 percent below the $4.3 billion of a year earlier.
Nine month capex is $11.9 billion, against $12.3 billion in the same period of 2025. To land inside guidance, the fourth quarter has to run between $4.07 billion and $4.57 billion. That is 10 to 23 percent above the third quarter, and still below the $4.75 billion of the fourth quarter of 2025.
Even the low end needs a step up. The nine month average is $3.98 billion a quarter.
Last year Verizon also spent more in the fourth quarter. The fourth quarter of 2025 was the highest of those seven quarters, at $4.75 billion, up from $4.31 billion in the third. A repeat of that pattern would put 2026 inside the range, and a fourth quarter at the third quarter's $3.72 billion would not.
Verizon spent 3.7 billion dollars on capital in the third quarter of 2026, the lowest of the seven quarters reported since 2025. Its unchanged full year guidance of 16.0 to 16.5 billion dollars implies 4.07 to 4.57 billion dollars in the fourth quarter, which is where the success based AI Connect spending would show.
View data
| Quarter | Capital expenditures including capitalized software, millions of dollars |
|---|---|
| 1Q25 | 4145 |
| 2Q25 | 3808 |
| 3Q25 | 4310 |
| 4Q25 | 4748 |
| 1Q26 | 4201 |
| 2Q26 | 4009 |
| 3Q26 | 3716 |
| 4Q26 implied, low end | 4074 |
| 4Q26 implied, high end | 4574 |
The top of the range leaves only $0.86 billion, or 23 percent, more than the third quarter. If the AWS build needs more than that, the range has to move. A fourth quarter above $4.57 billion forces a guide change.
The forecast also represents a spending cut. Capex was $17.0 billion in 2025, so the 2026 range is 3 to 6 percent lower. That holds even though it now includes Frontier, the fiber operator Verizon bought, from 20 January. The earnings deck labels the capex range "Unchanged".
Cash flow, acquisitions and debt
Cash flow pays for the build, but not for everything else. Verizon's cash flow statement shows free cash flow of $18.0 billion over nine months, up 14 percent. Shareholders took $12.8 billion of that, in $8.8 billion of dividends and $4.0 billion of buybacks.
Two purchases came on top. Verizon paid $9.5 billion for acquired businesses, chiefly Frontier, and $4.4 billion for wireless licences. Free cash flow covered the shareholder payments but not those two bills.
Cash fell $14.6 billion to $4.5 billion in nine months, from $19.0 billion at the end of 2025. Net unsecured debt, which subtracts cash, rose $13.7 billion to $123.7 billion. That is 2.3 times adjusted EBITDA. Unsecured debt rose $5.0 billion to $136.1 billion.
The third quarter alone went the other way. Net unsecured debt fell $5.0 billion from $128.7 billion at the end of the second quarter.
Borrowing continues. In nine months Verizon raised $13.7 billion of long term debt and $13.8 billion of asset backed debt. It repaid $17.3 billion and $14.3 billion.
Total debt rose $8.1 billion to $166.2 billion. Debt maturing within one year is $23.9 billion, against $4.5 billion of cash.
The cost of that debt is rising. Third quarter interest expense was $1.95 billion, up 17 percent from $1.66 billion a year earlier. Depreciation and amortisation rose 10 percent to $5.1 billion, from $4.6 billion.
Earnings and free cash flow
Earnings give Verizon room to absorb a fourth quarter near the top of the range. Adjusted EBITDA was $13.8 billion, up 8 percent, which Verizon calls the highest it has ever reported. The margin rose to 40.2 percent from 37.8 percent.
Business segment EBITDA rose 13 percent to $1.94 billion. Verizon expects up to $4.5 billion of buybacks for the year.
Capital spending reduces the cash left as free cash flow. Third quarter free cash flow was $7.8 billion, up 12 percent. Cash from operations is forecast at $38.44 billion to $39.04 billion for the year, up from $37.14 billion in 2025, and capex of $16.5 billion takes 42 to 43 percent of it.
Verizon raised its 2026 free cash flow forecast to between $22.44 billion and $22.54 billion. The earlier range was $21.94 billion to $22.14 billion. Verizon now expects free cash flow to approach 12 percent growth on the $20.13 billion of 2025, and the forecast assumes capex stays inside the budget.
Fiber growth and customer demand
Schulman's pitch rests on the fiber network. Verizon ended the quarter with 11.1 million fiber connections, against 7.7 million a year earlier. Most of the jump came in the first quarter, when fiber connections rose from 7.7 million to 10.8 million as Frontier closed on 20 January.
Organic fiber net adds were 437,000 over nine months. That includes 155,000 in the third quarter against 61,000 a year ago. Verizon expects more than 32 million fiber passings by the end of 2026, and a target of 40 to 50 million over the medium term.
The customer base is still growing. Verizon added 406,000 postpaid phones in the quarter and now has 17.4 million broadband connections, including 6.4 million on fixed wireless. Mobility and broadband service revenue was $23.5 billion, up 2.9 percent, and Verizon forecasts about 4 percent growth in the fourth quarter.
Revenue growth overall is thin. Revenue was $34.3 billion, up 1.5 percent, and equipment revenue fell 9 percent. Higher margins, rather than volume, account for profit growth.
If AI Connect spending lands in the fourth quarter, capex finishes between $16.0 billion and $16.5 billion and free cash flow near $22.5 billion. A fourth quarter above $4.57 billion forces a guide change at the full year report.