Amazon's third-quarter earnings, due after the market close on Thursday, will put the spotlight on Amazon Web Services (AWS) as investors weigh whether accelerating cloud growth can justify the company's escalating investment in artificial intelligence infrastructure.
The e-commerce and cloud giant has guided to roughly $220 billion in capital expenditure for 2026, up from $132 billion last year. That figure is part of a broader industry trend: consensus estimates compiled by Seeking Alpha show hyperscaler capex reaching $762 billion in 2026, more than double the $362 billion spent in 2025, and climbing to $1.3 trillion by 2027.
Amazon's results will also provide a read on its retail operations, advertising business, and cloud segment amid lingering concerns about consumer spending, inflation, and the profitability of AI investments. Shares were down 2.4% in premarket trading on Thursday.
AWS growth and margins remain central to the outlook
Analysts expect AWS revenue to rise 37% year over year to approximately $45 billion in the third quarter, with Visible Alpha consensus pegging the figure at around $45.4 billion. The cloud division's operating margin is projected to reach 37.3%, up from 35% last quarter and 34.2% in April 2026. However, estimates range widely—from 31.4% to 41.1%—reflecting differing views on the profitability of AI services.
AWS has held its operating margin steady despite rising depreciation expenses tied to infrastructure investments. Analysts expect the segment to generate about $17 billion in operating income, representing roughly two-thirds of Amazon's total.
The company's relationship with Anthropic will also remain under scrutiny. Amazon is a competitor, distributor, customer, vendor, and shareholder in the AI startup, whose prospectus mentioned Amazon and AWS 166 times. Anthropic's $110 billion, 10-year AWS contract is a particular consideration as Amazon and other tech firms commit substantial resources to supporting AI businesses. The ability of these companies to meet future financial obligations could affect the cloud providers backing them.
Retail growth and profitability face pressure
Amazon's retail business is expected to report slower growth after its Prime Day shopping event moved into the second quarter. Analysts forecast third-quarter retail sales growth to slow to 5%, following 15% growth in the prior quarter. The timing shift is also expected to weigh on advertising revenue after an unusually strong second quarter.
Overall, Wall Street expects Amazon to report $202 billion in quarterly sales, a 12% year-over-year increase. Visible Alpha consensus for North American revenue has edged down to $113.8 billion, while expectations for international online retail have also softened, possibly reflecting concerns about consumer spending amid inflation. The North American retail operating margin is expected to reach 6.8% in the third quarter, though estimates for the third and fourth quarters have declined by roughly 50 basis points since last quarter. Inflation and tariffs remain key considerations for retail revenue and profitability.
Rising AI expenditure puts cash flow under scrutiny
Amazon's infrastructure spending remains a key concern as investment across the technology sector accelerates. With two quarters of 2026 completed, the company's projected annual capex of $220 billion implies approximately $120 billion in spending during the second half of the year. The broader industry's investment is also expected to outpace revenue growth in the near term, potentially pressuring free cash flow.
Amazon added $78 billion of debt to its balance sheet in the nine months ending in June and borrowed roughly $30 billion more in the third quarter. Investors will therefore be watching the company's fourth-quarter guidance and commentary on AI investments for indications of whether further capex increases are likely.
Amazon shares have risen 12.3% year to date, broadly in line with the S&P 500. The consensus price target of $336 implies a potential return of 35%, while valuation estimates stand at 19 times fiscal 2026 earnings and 23 times fiscal 2027 earnings.
This article is for informational purposes only and does not constitute financial advice.
