Amazon's AWS posts 39% growth, its fastest in nearly five years

A record margin on a quarter that missed

Amazon reported third-quarter results on 29 October. It missed on both revenue and earnings per share. Revenue came in at $201.9 billion, up 12%, just below the $202.22 billion consensus. Earnings per share of $1.89 fell short of the $1.97 analysts expected.

What matters is the split inside those numbers. AWS produced about 63% of Amazon's operating income on 23% of revenue, according to Cestrian Capital Research's reading of the filing. Buyers of AI compute get more capacity either way. Shareholders get a bigger bill. CEO Andy Jassy has said the cash squeeze lasts until new data centers are monetized. He did not give a date.

Profit was the surprise. Operating income of $28.1 billion came in about $1.6 billion above the top of Amazon's own $22.5 billion to $26.5 billion guidance range. The 13.9% operating margin was the highest in company history. AWS carried it. Revenue was $46.0 billion, up 39%, its fastest growth in nearly five years. Segment operating income was $17.8 billion, and the margin was 38.7% against 34.6% a year earlier. Growth has accelerated for six straight quarters. It went from 20% in the third quarter of 2025 to 37% in the second quarter of 2026 to 39%. Jassy put the AWS annualized revenue run rate at $184 billion.

The retail side was softer. Advertising grew 11% to $19.6 billion, down from 22% a year earlier. Online stores grew 2% to $68.5 billion. Amazon said moving Prime Day into the second quarter took about 4 percentage points off total growth.

Net income fell to $20.7 billion, or $1.89 per diluted share, from $21.2 billion a year earlier. The main reason was the year-ago quarter. It carried $9.5 billion of pre-tax gains on Amazon's Anthropic stake.

Capex of $77bn in one quarter

Amazon spent $77.26 billion on capital projects in the quarter. That was above expectations and up from $54.21 billion in the second quarter.

For the full year, the company still guides to about $220 billion. That compares with $128 billion in 2025. It raised that figure in July. Jassy attributed a $20 billion increase to higher memory costs rather than added capacity. The money goes into data centers, AI servers and warehouses. Amazon says it still will not have enough capacity to meet 2026 demand. Jassy said the company will spend "meaningfully more" in 2027. He did not give a number. JPMorgan analyst Doug Anmuth has estimated $395 billion for 2027 and $476 billion for 2028. Bank of America had expected AWS growth as high as 42%. That helps explain the cool first reaction to a 39% print.

Demand is not the constraint. Jassy put the AWS backlog at $578 billion in contracted future revenue, more than double a year earlier. He said most 2027 capacity is already reserved. Anthropic and OpenAI hold multi-gigawatt commitments for Amazon's Trainium chips. Amazon's AI and custom chip businesses have each passed a $25 billion annual run rate.

Free cash flow goes negative

Trailing 12-month free cash flow was an outflow of $42.4 billion. That compares with an inflow of $14.8 billion a year earlier.

A $94.8 billion year-over-year jump in purchases of property and equipment drove most of the swing. Amazon attributed the increase mainly to AI investment. Debt-to-assets rose to 23.70%. The quarter was the third consecutive with negative free cash flow, equiti noted. Jassy has argued the payback is there. Servers break even in "a little less than three years" and last at least five to six years.

Evercore ISI analyst Mark Mahaney has said the bigger issue for the stock may be how Amazon finances the buildout. He said the company is better placed than many peers. It can rely on debt rather than equity.

Analysts split after the report. TD Cowen cut its target to $340 from $350 and kept a Buy rating. Citizens cut to $275 from $315. MoffettNathanson raised to $357 from $315.

What happens next

Amazon guided fourth-quarter revenue to $240 billion to $247 billion, up 12% to 16%. It guided operating income to $28.5 billion to $33.5 billion. Wall Street had expected operating income of $33.2 billion, near the top of that range. Amazon also said it expects advertising growth to return to the high teens.

CFO Brian Olsavsky said costs for Amazon Leo, the satellite internet service, are weighing on the fourth-quarter profit forecast. The service is due to launch later this year. Oppenheimer analyst Jason Helfstein said Anthropic's IPO filing could disclose more about compute demand. That includes about $111 billion committed to AWS.