Cloud computing business continues to accelerate, yet it cannot mask the weakening of its e-commerce core—Amazon is undergoing a market test similar to Google's.
The third-quarter earnings report showed Amazon's total revenue increased 12% year-over-year to $201.9 billion, below analyst expectations. AWS revenue growth has increased for six consecutive quarters, but online retail sales growth fell to its lowest level in three years, and advertising revenue growth hit its lowest level on record. Meanwhile, capital expenditures on devices and property exceeded $77 billion in the third quarter, far surpassing market expectations, and free cash flow over the past 12 months totaled -$42.4 billion.
After the earnings report, Amazon's stock fell approximately 7% in after-hours trading, following a year-to-date gain of about 5.6%. This decline closely mirrors Alphabet's experience during the same period—Alphabet's stock plunged 13% at Thursday's close due to lower-than-expected revenue from search and advertising, marking its largest single-day drop ever.
AWS is accelerating, but the "above expectations" bar has been raised by Microsoft.
AWS's third-quarter revenue increased 39% year-over-year to $46 billion, up from 37% growth in the previous quarter, marking the sixth consecutive quarter of accelerating growth. CEO Andy Jassy stated on the earnings call that AWS's core compute and storage rental business is growing at the fastest pace in years, and he expects AWS to achieve more than 40% year-over-year growth annually over the next two years.
AWS's growth has been partially driven by demand from AI companies such as OpenAI and Anthropic, both of which rely on Amazon's servers to run their models. Jassy also revealed that Amazon’s in-house AI chip, Trainium, will begin selling to external customers by the end of 2027.
However, AWS's strong performance did not fully calm the market. Sky Canaves, an analyst at eMarketer, said, “AWS’s accelerated growth fell short of inflated expectations and failed to surpass the higher competitive benchmarks set by Microsoft and Google. While the improvement in cloud business operating margins is a positive sign, it may not be enough to alleviate market concerns about sharply rising capital expenditures and the resulting significant decline in free cash flow.”
In contrast, Microsoft announced on the same day that its cloud revenue grew by 48%, while keeping capital expenditures restrained, resulting in a stock price decline of less than 1% on Thursday.
E-commerce growth hit its lowest three-year low, largely due to the rescheduling of Prime Day.
Online sales grew only 2% year-over-year to $68.5 billion in the third quarter, marking the slowest growth since early 2023. Amazon attributed part of this to a timing shift in the Prime Day promotional event—this year, Prime Day in most major markets moved from the third quarter to the second quarter, resulting in related sales being excluded from this quarter’s results.
Analyst John Tomlinson from research firm M Science believes that the relative weakness on the retail side is “in part” related to the timing adjustment of Prime Day, but he also noted: “A crack has appeared here; the market is paying very close attention to the scale of AI spending by companies.”
Sky Canaves further noted that the timing adjustment for Prime Day "cannot fully explain the sluggish growth of online stores and advertising, suggesting that consumer pressure may be becoming more pronounced—consumers are beginning to cut back where they can, which is having a cascading effect on advertisers' willingness to spend."
In terms of advertising revenue, third-quarter growth increased by 11%, the slowest pace since Amazon first disclosed this metric separately in 2020. In contrast, from the second quarter of 2025 to the second quarter of 2026, Amazon’s advertising business posted quarterly growth rates exceeding 20% each quarter.
Capital expenditures surged, causing free cash flow to turn sharply negative.
In the third quarter, Amazon spent over $77 billion on equipment and property, significantly exceeding analyst expectations. Free cash flow over the past 12 months amounted to -$42.4 billion, compared to a positive $14.8 billion in the same period last year—a reversal primarily driven by a $94.8 billion year-over-year increase in purchases of property and equipment.
The company maintained its previous forecast of approximately $220 billion in capital expenditures for 2026, but Jassy stated on the call that capital expenditures in 2027 will “significantly” increase further.
This spending pace has unsettled investors. Bloomberg reported that even for highly diversified companies like Amazon, the steady growth of their cloud business has failed to allay concerns about the pace of AI investments.
Q4 guidance fell below expectations, raising concerns on the consumer side.
Amazon expects Q4 (holiday shopping season) revenue to range between $240 billion and $247 billion, compared to the analyst consensus of $244.5 billion, with the midpoint slightly below expectations. The Q4 operating profit guidance is $28.5 billion to $33.5 billion, compared to the analyst consensus of approximately $33 billion, with the lower end of the range clearly below market expectations.
The operating profit for the third quarter was $17.8 billion, compared to $11.4 billion in the same period last year.
Jassy emphasized the health of the company’s core business during the earnings call. He noted that grocery and everyday essentials sales reached nearly $250 billion over the 12 months ending in September, growing at three times the rate of overall e-commerce and accounting for approximately half of all units sold in the third quarter. The shopping chatbot Alexa for Shopping surpassed 400 million users over the past 12 months, up from the 350 million disclosed last quarter.
However, none of the above positive signals were able to reverse the post-market decline in the stock price.
Shares the same fate as Alphabet, with market sentiment highly synchronized.
Amazon's market reaction this time closely mirrors Alphabet's situation during the same period. Alphabet's third-quarter results showed that search advertising revenue increased 12% year-over-year to $63.3 billion, below the market expectation of $64.9 billion, while free cash flow came in at -$9.1 billion, causing its stock to plunge 13% by Thursday's close.
Alphabet's management characterized the delayed monetization of AI search as an intentional choice during the earnings call. CEO Sundar Pichai compared the current phase to the mobile transition a decade ago: "Just as we shifted to mobile a decade ago, we are focused on first building the best search user experience before monetizing." But the market isn't buying it.
The shared challenges of the two companies reflect a broader market question: AI investments are visibly suppressing cash flow and growth in core businesses, while the timeline for monetization remains unclear. In contrast, Microsoft, with its high-growth cloud business and relatively restrained capital expenditures, has emerged as one of the few tech giants to satisfy investors during this earnings season.