Amazon (AMZN -1.64%) is cutting back in a lot of areas, but its cloud-computing business isn't one. The online retail giant plans to cut 10,000 jobs across its retail, devices, and human resources divisions, but it might actually be hiring in cloud computing.

Amazon Web Services marketing chief Matt Garman said he expects his division to add staff in 2023. He also thinks the company will build more data centers in the coming year. Here's how that might impact investors going forward. Let's see what that should mean for investors.

Slowing growth

Amazon's cloud division, known as AWS, posted its slowest revenue growth ever in the third quarter since it started breaking out its results in 2014. Revenue increased just 27% year over year in Q3. What's more, its operating margin contracted, falling 4 percentage points from 30.3% in the third quarter of 2021 to 26.3%.

CFO Brian Olsavsky pointed to wage inflation, particularly tied to stock-based compensation, and higher energy costs as the main culprits behind the contracting operating margin. He said during Amazon's third-quarter earnings call that the latter had a 200-basis-point impact. The company is aiming to mitigate the impact and reduce energy usage.

Still, AWS is a standout performer compared to Amazon's retail business. Its revenue grew faster than any other major segment at Amazon, including the fast-growing advertising business.

A focus on capex

Amazon's continued expansion of AWS data centers means it's going to keep up the capital expenditures for the division. This comes at a time when the company is actively cutting back on capex in its retail business.

"We probably cut about one-third of our budget from what we originally thought for 2022," Olsavsky told investors during the third-quarter earnings call. He did note, however, that the company remained focused on investing capital in AWS.

Still, Amazon has seen its free cash flow plummet into negative territory over the last few quarters. It was a negative $19.7 billion over the past 12 months. That compares to a positive $2.6 billion in the year-ago period. That's also a $50 billion turnaround from where it was in the third quarter of 2020.

Of course, capex isn't the only culprit in Amazon's free cash flow story. The company historically goes through bursts of spending to maximize its growth. As Amazon curbs spending further on the retail side in 2023, it doesn't seem to be planning the same for AWS. That could result in less of a benefit to free cash flow next year than investors may be anticipating.

Investing for growth

There's good reason for Garman to expect more hiring and capex dedicated to AWS despite its slowdown in revenue and contracting margin -- namely,  there's a big backlog of contracts for it to fulfill.

AWS commitments grew to $104.3 billion at the end of the third quarter. That's up from $66.3 billion at this time last year. That 57% growth rate is also an acceleration from the 48% growth it saw last year.

What's more, the average length of its contracts is increasing. The average remaining life on its contracts is now 3.8 years, up from 3.4 years two years ago.

With growth in commitments outpacing actual revenue growth (even when adjusted for extended contract lengths), there's a lot of room left for AWS to expand. Amazon is going to continue investing to meet that growth until it sees signs of a slowdown. That could be a drag on cash flow overall, but it will certainly pay off in the long run.

Investors should look for a reacceleration in AWS revenue growth as it works to meet its commitments. Likewise, efforts to mitigate the negative drags on expenses should lift operating income and expand margins. That's well worth another year of big spending on cloud computing.