By Hamza Faisal
Amazon's cloud business just posted its fastest growth in nearly five years — and the stock still fell. The company reported third-quarter sales of $201.9 billion, up 12% from a year earlier, but earnings of $1.89 a share missed Wall Street's $1.97 forecast, and a cautious outlook for the holiday quarter sent shares down more than 6.5% in after-hours trading on Thursday.
Net income slipped to $20.7 billion from $21.2 billion a year ago, though the year-earlier figure was flattered by a $9.5 billion pretax paper gain on Amazon's investment in Anthropic, the AI lab. Strip that out, and the operating picture looks far stronger: operating income jumped to $28.1 billion from $17.4 billion, pushing the operating margin to 13.9%, the highest in Amazon's history.
AWS does the heavy lifting
Amazon Web Services remains the engine. AWS sales rose 39% to $46.0 billion — 39.3% as reported — its fastest growth in nearly five years, running at a $184 billion annualized revenue rate. AWS operating income climbed to $17.8 billion from $11.4 billion a year earlier, and Amazon said it expects AWS growth above 40% in both 2027 and 2028.
The AI story inside AWS is accelerating: its AgentCore platform has attracted tens of thousands of customers, with twice as many AI agents deployed in the third quarter as in the prior quarter, while Alexa for Shopping now reaches more than 400 million customers, with interactions up 570% from a year ago.
The retail side was softer. North America sales rose 6% to $112.9 billion, slightly below the $113.2 billion forecast, while international sales rose 5% to $43.1 billion, or 8% excluding currency swings. Online store sales grew just 2% to about $68.5 billion. Amazon noted that Prime Day moved into the second quarter in most large countries this year, versus entirely in the third quarter last year — excluding that shift, sales growth would have been about four percentage points higher.
The miss that moved the stock
Investors focused on what came below the operating line and what comes next. Fourth-quarter guidance calls for net sales of $240 billion to $247 billion and operating income of $28.5 billion to $33.5 billion — both ranges whose midpoints sit below consensus, with the operating-income midpoint roughly $2 billion light.
Free cash flow also deteriorated, falling to an outflow of $42.4 billion over the trailing 12 months, as Amazon pours money into AI infrastructure. Capital spending reached $75.9 billion in the quarter alone.
A $220 billion AI bet
That spending is the point, in Amazon's telling: the company plans about $220 billion in capital expenditure this year, largely to build AI data centres, after chief executive Andy Jassy added $20 billion to the plan in July, citing the higher cost of memory. Amazon said earlier this year it had passed Walmart to become America's largest company by annual revenue, and it is investing in faster delivery and new categories such as luxury goods and cars.
The question for the holiday quarter is whether the cloud acceleration can outrun the retail softness and the spending surge. AWS is now growing at its fastest pace since the early 2020s, but with the stock punished for a headline miss, Amazon's AI bet has to keep paying off quarter after quarter — not just in operating profit, but in the earnings per share investors actually watch.
