Amazon (AMZN -0.34%) has been on a spending spree over the last few years, but it's going to cut its budget in 2023.

The company has increased its capital expenditures every year since 2015. That year it spent $4.6 billion building data centers for Amazon Web Services (AWS) and laying the groundwork of its logistics network. Last year, after some massive pandemic-era increases in spending, the company's capital expenses totaled a whopping $58.3 billion.

Investors will see some relief this year. "For the full year 2023, we expect capital investments to be lower than our $59 billion investment level in 2022," CFO Brian Olsavsky shared on Amazon's first-quarter earnings call. That'll be the first pullback in spending since 2015.

What's getting budget cuts (and what isn't)

Amazon has two main areas for its capital expenditure budget: Its fulfillment network and its cloud computing infrastructure. It'll spend less on the former this year, and more on the latter.

After doubling its fulfillment network footprint from the end of 2019 to the end of 2021, Amazon's slowed its investments in the area. While it's still adding locations, focused on same-day delivery, it's more focused on making the most of its existing facilities.

To that end, Amazon has made several efforts to improve operating efficiency in its network over the last six to nine months. That includes a complete overhaul of the network, dividing the United States into distinct regions to cut down on cross-country transport. While it's showing increased efficiency already, CEO Andy Jassy says there's still room for improvement. "We have found a lot more opportunities than we even thought were there before," he said on the earnings call.

Meanwhile, investors can expect increased spending on Amazon Web Services, the company's cloud computing business. While management said it expects a further slowdown in revenue growth for AWS in the second quarter, it sees a massive long-term opportunity in the growth of machine learning, large language models, and generative artificial intelligence (AI).

As such, it's pushing forward on investments in those areas and building products and services for the expected growth in those areas. Most recently, it launched Amazon Bedrock, a service that lets developers build applications on top of the large language models developed and trained by other companies.

Overall, Olsavsky expects the pullback in fulfillment spending to exceed the increase in spending on AWS, leading to a full-year decline in capital expenditures.

The effect on Amazon's financials

The biggest effect of reduced capital expenditures can be seen on free cash flow.

Amazon generated cash outflows of $9.1 billion and $11.6 billion in 2021 and 2022, respectively. But it's already showing improvements. After the first quarter, free cash flow for the trailing 12 months was negative $3.3 billion, compared to negative $18.6 billion for the prior 12-month period.

With continued revenue growth across all its segments (even if AWS is slowing down) and improved operating leverage in the main retail business from logistics improvements, Amazon should see strong growth in cash from operations. Combined with lower capital expenditures, it'll be back to throwing off billions in free cash flow for investors by the end of the year.

With Amazon's cash balance set to start growing again, it'll give the company a lot of flexibility to invest in more opportunities -- either internally or through external acquisitions -- or even use its share repurchase authority to buy back shares. Amazon still has $6.1 billion remaining in the share repurchase program authorized by the board last March. With a return to positive free cash flow, it could afford much more.

Considering Amazon's shares are still trading near their pre-pandemic price, now looks like a great time for management to buy back some shares. Individual investors may want to add some as well.