Amazon (AMZN) Q3: AWS Speeds Up, but Ads and Earnings Miss Estimates

Amazon (AMZN) reported third-quarter revenue of $201.94 billion, up 12% year on year, just short of the $202.2 billion analysts expected, according to FactSet data cited by the Associated Press. Diluted earnings of $1.89 a share missed the $1.97 estimate. The shares slid 6.5% after hours to $227.99 as of 5:20 p.m. ET, on top of a 4.25% fall in the regular session.

What stood out

AWS, Amazon’s cloud-computing arm, grew at its fastest pace in nearly five years, Amazon said in the release. Revenue rose 39% to $45.98 billion, ahead of the $45.29 billion analysts expected, according to StreetAccount data cited by Sweden’s TT news agency, and up from 37% growth in the second quarter.

Chief Executive Andy Jassy went further in the results release. “Our AWS investment in functionality and infrastructure is working, with over 39% year-over-year revenue growth in Q3 ($184 billion revenue run rate) and projected revenue growth rates of over 40% both in 2027 and in 2028,” he said.

Advertising was the soft spot. Ad revenue grew 11% to $19.64 billion, well short of the roughly 18% growth analysts expected, according to LSEG data cited by Reuters. Amazon blamed “timing anomalies primarily related to Prime Day,” which fell in the second quarter this year, and said total revenue growth would have been about 4 percentage points higher without that shift.

Operating income still rose 61% to $28.08 billion, and the operating margin of 13.9% was what Amazon called its “highest operating margin ever.” Earnings per share fell from $1.95 a year earlier, mainly because that quarter included $9.5 billion of pre-tax gains on Amazon’s investments in Anthropic, the release said.

The outlook

Amazon expects fourth-quarter revenue of $240.0 billion to $247.0 billion. The $243.5 billion midpoint sits just below the $244.51 billion analysts expected, according to LSEG data cited by Reuters. The bigger gap is profit: operating income of $28.5 billion to $33.5 billion has a $31 billion midpoint, against about $33 billion expected, according to Bloomberg consensus data cited by Yahoo Finance, and investingLive.

Spending is not slowing. Amazon bought $77.26 billion of property and equipment in the quarter, more than double a year earlier, and still expects 2026 cash capital spending of about $220 billion. Free cash flow over the past 12 months was negative $42.4 billion, against positive $14.8 billion a year earlier, the release showed.

Amazon said it expects ad growth to return to “the high teens” in the fourth quarter.

Our take

AWS is doing what investors hoped, and a forecast of 40%-plus growth for two more years is a bold one to put in writing. But the stock had already fallen 4.25% during the day as Alphabet’s slide stirred worries about AI spending, Investing.com reported, in what Reuters called a broader sell-off in tech stocks, and this report gave those worries more to chew on: negative free cash flow and a weaker profit guide. Next quarter, we’ll watch whether ads really bounce back to high-teens growth and what Amazon says about 2027 spending.