Amazon's stock dropped more than 4% in after-hours trading on Thursday after the company's third-quarter revenue and earnings fell short of Wall Street expectations, while its hefty artificial intelligence spending plan intensified concerns about cash flow and returns on investment.
The e-commerce and cloud giant reported revenue of $201.9 billion for the quarter, up 12% year over year but slightly below the $202.2 billion analysts had projected, according to FactSet. Net income declined to $20.7 billion, or $1.89 per share, from $21.2 billion, or $1.95 per share, a year earlier. Analysts had anticipated earnings of $1.97 per share.
The results come as investors scrutinize whether major technology companies can generate sufficient returns from their massive AI infrastructure outlays. Amazon's capital expenditure reached $75.9 billion in the third quarter, and the company maintained its forecast of approximately $220 billion in capex for 2026, with much of that directed toward AI infrastructure and data centers.
AWS Growth Beats Estimates, but Spending Concerns Persist
Amazon Web Services (AWS) remained a bright spot, with revenue climbing 39% year over year to $46 billion, exceeding analysts' expectations of $45.47 billion. The growth rate also surpassed Wall Street's forecast of 37.8%. Chief Executive Andy Jassy defended the company's infrastructure spending, stating that investments in AWS are delivering growth. He also projected AWS revenue growth of more than 40% in 2027 and 2028.
However, the spending plans continued to weigh on investor sentiment. The heavy investment contributed to a cash outflow of $42.4 billion over the trailing 12 months, compared with a cash inflow of $14.8 billion in the year-earlier period. This shift underscores the financial demands of expanding computing capacity to meet growing AI service demand.
Retail Sales and Profits Fall Short
Amazon's North American sales increased 6% year over year to $112.9 billion, missing analysts' forecast of $113.2 billion. Revenue from its online stores business rose 2% to approximately $68.5 billion. The company attributed part of the shortfall to the timing of Prime Day, which moved into the second quarter in several major countries, affecting third-quarter revenue growth. Advertising revenue growth also slowed to 12% due to the shift, though Amazon expects advertising growth to rebound to the high teens in the fourth quarter.
Net income was also affected by a comparison with the previous year. Amazon said third-quarter 2025 profit included $9.5 billion in pretax gains on its investment in AI company Anthropic.
Fourth-Quarter Guidance and Future AI Investment
For the fourth quarter, Amazon forecast revenue of $240 billion to $247 billion, representing growth of 12% to 16%. The guidance includes some expected negative effects from currency fluctuations. The company also projected operating income of $28.5 billion to $33.5 billion.
While Amazon did not provide capital expenditure guidance for 2027, Evercore ISI analysts forecast spending could reach $320 billion next year, alongside negative free cash flow of $57 billion. That outlook highlights the financial demands of the AI infrastructure race, even as AWS delivers faster growth.
Amazon's spending strategy also comes amid broader scrutiny of data-center expansion and the resources needed to support it. The company has pledged more than $1 billion over five years towards communities hosting its data centers.
For investors, the central question remains whether strong cloud growth can translate into sustainable cash generation as Amazon continues to invest heavily in AI infrastructure.
This article is for informational purposes only and does not constitute financial advice.
