Markets
AWS Grew 39%. Amazon Still Fell After Hours
Amazon Web Services grew 39% to $46 billion in the third quarter, its fastest pace in nearly five years, but Amazon's shares fell about 6% after hours on Thursday. Earnings missed forecasts as quarterly capital spending reached $75.9 billion.
Amazon delivered the cloud number investors had been asking for and was sold anyway. Amazon Web Services revenue rose 39% to $46.0 billion in the third quarter, the fastest growth in nearly five years, GeekWire reported, and the unit's operating income rose to $17.8 billion from $11.4 billion a year earlier, a margin of about 38.7%. The company's overall operating margin of 13.9% was the highest in its history.
The headline numbers were a shade short. Net sales rose 12% to $201.9 billion against about $202.1 billion expected, and diluted earnings were $1.89 a share against $1.96 forecast and $1.95 a year earlier, according to Investing.com; net income was $20.7 billion. The shares had already fallen 4.25% in the regular session, to $243.79, as Alphabet's record slide hit the whole AI trade, and they traded at $228.90 after hours, a further 6.1% lower, with some early prints showing a drop close to 10%.
Spending explains most of the reaction. Cash capital expenditure was $75.9 billion in the quarter, mostly for AWS and AI, and Amazon expects about $220 billion for 2026; chief executive Andy Jassy said the company will spend "meaningfully more in 2027". TradingKey calculated free cash flow, after asset sales and incentives, at minus $33.5 billion, against a small surplus a year earlier. Jassy pointed to the demand behind it: an AWS backlog of $578 billion, Trainium and Graviton revenue commitments each up more than 20 times from a year earlier, and AWS growth he expects to exceed 40% in both 2027 and 2028.
Guidance did not change the mood. Amazon forecast fourth-quarter net sales of $240 billion to $247 billion and operating income of $28.5 billion to $33.5 billion, with foreign exchange a headwind of about 60 basis points. The holiday quarter is usually when the retail business carries the group; this year it will also have to show how much of AWS's growth survives the depreciation that $220 billion of equipment will start to generate.
Three hyperscalers have now reported in two evenings, and the market has graded them on the same test. Microsoft rose because it still produced $18.6 billion of free cash flow; Alphabet and Amazon fell because their spending outran the cash their businesses generate, even with cloud growth accelerating. For Amazon, the 39% is real progress after two years in which AWS lost share to Azure and Google Cloud. The question investors are now asking is not whether demand exists, but who funds the capacity until it pays.