Amazon’s cloud business is growing faster than at any time in nearly five years. Investors, worried about the cost of that growth, were not impressed.
The company reported on Thursday that Amazon Web Services revenue rose 39.3% to $45.98 billion in the third quarter, speeding up from 37% in the previous quarter. That beat analysts’ forecasts of roughly $45.3 billion to $45.6 billion. Shares fell more than 6% in after-hours trading, after closing the regular session down 4.25% at $243.79.
A miss at the top and bottom
Total revenue was $201.9 billion, up 12%, which came in just under the top of Amazon’s own forecast range of $197 billion to $202 billion and slightly short of the $202.3 billion analysts expected. Earnings were $1.89 a share against a forecast of about $1.96. Net income of $20.7 billion was below expectations and lower than a year earlier, which Amazon attributed to gains from an AI-company investment booked in the prior-year quarter.
Operating income was a record $28.1 billion, with a margin of 13.9%, the highest in the company’s history. But higher interest costs on its growing debt and other losses ate into profit. A shift in the timing of Prime Day into the previous quarter also made the retail numbers look softer than underlying demand.
The cloud story
AWS operating income climbed 55% to $17.8 billion, and the unit now has an annual revenue run rate of about $184 billion. Chief executive Andy Jassy said he expects AWS revenue growth to exceed 40% in both 2027 and 2028. He also said Amazon plans to begin selling its own Trainium AI chips to outside customers in late 2027.
The numbers are strong, but Amazon is growing from a much bigger base than its rivals and still trails them in percentage terms. Microsoft reported Azure growth of 48% on Wednesday, and Google Cloud grew 103% from a smaller base. AWS remains the largest cloud provider by revenue, but investors have been looking for signs that it is keeping pace.
The spending question
The sticking point was money going out. Amazon still expects to spend around $220 billion on capital expenditure this year, mostly on data centers and computing equipment for artificial intelligence, and Jassy signaled that spending will rise again in 2027. Free cash flow has turned negative, and the company’s long-term debt has nearly doubled.
That puts Amazon in the same bind as its peers. Alphabet fell 12.6% on Thursday, its worst day on record, after missing forecasts and reporting a second straight quarter of negative free cash flow. Microsoft’s shares rose on its report because it showed positive cash flow alongside fast Azure growth. Meta Platforms announced earlier this week that it plans to raise up to $95 billion in new equity.
Retail keeps pace
Away from the cloud, Amazon’s retail operation had a steady quarter. Jassy said the business is gaining market share with improving margins, with retail sales over the past 12 months, including online stores, physical stores and third-party sellers, close to $500 billion.
What it means for the market
The reaction shows how the market’s mood has changed. For much of the year, investors rewarded companies for investing heavily in AI. Now they are demanding proof that the investment is paying off in cash. The results from the three biggest cloud providers this week make clear that demand for computing power remains strong. What remains in question is how long they can spend at this rate before the financing strains.
Amazon’s own share price had already slid before the report. The stock had been trading near its 200-day moving average, and it is well below the record close of about $284. After-hours losses on Thursday took it lower still, and Nasdaq futures pointed down on Friday morning in Asia.
This article is for information and does not constitute investment advice.
