Amazon's AI Capex Drags Q3; Traders See AWS Bright Spot

Amazon's Q3 Print Turns AI Spend Into a Market Problem

AMZN shares plunged more than 6% in extended trading Thursday after third-quarter results disappointed on the surface and, more importantly, exposed the free cash flow drag from its ballooning AI investments. The company reported earnings per share of $1.89 versus the $1.96 street estimate, and revenue of $201.94B versus $202.31B expected. The gap looked small, but the market read it as another sign that Amazon's biggest growth engine is no longer the only engine working.

Wall Street's bigger problem was capital spending. Amazon held steady on its capex forecast for 2026, saying it continues to expect spending will reach $220B this year. CEO Andy Jassy told investors the company expects to "spend meaningfully more in 2027" and has a "clear line of sight to attractive financial returns." In other words: more AI outlays are coming, and Amazon is still asking the market to wait for the payoff.

AWS Is Still the Bullish Anchor

AWS revenue soared 39% year over year to $45.98B, topping the $45.29B consensus and beating the 38% growth expectation. Jassy highlighted the acceleration in the earnings release, writing, "Our AWS investment in functionality and infrastructure is working." He also said Amazon expects cloud revenue growth rates of "over 40%" next year and in 2028.

That gives traders a reason to keep faith in the story. The problem is whether the proof can catch up with the spending. Amazon pointed to traction for Bedrock, its AI model marketplace, and for its Trainium and Graviton chips. Jassy said the chip business "continues to grow triple-digit percentages year over year" and that Trainium chips will be available externally "late in 2027." He also said he expects AWS will be a $1 trillion revenue business in the next five to 10 years.

Negative Free Cash Flow Is the Real Headache

Amazon posted negative free cash flow for the second consecutive quarter, recording an outflow of $42.4B for the trailing twelve-month period, a 386% year-over-year swing. In the prior quarter, it reported negative free cash flow of $7.6B. The company said the shortfall was primarily due to increased purchases of property and equipment tied to AI investments. Quarterly capex reached $77.3B, up from $35.1B a year earlier and well above street estimates.

For traders, that is the number that changes the debate. The question is no longer only whether Amazon can meet AI demand. It is whether a cloud leader can keep funding infrastructure at that pace without making the stock's cash-flow profile look expensive before the returns show up. Peers are already signaling caution: Microsoft lowered its annual capex forecast to $170B from $175B, while Alphabet held guidance at $195B to $205B. Amazon leaning forward creates optionality, but it also raises the bar for visible monetization.

Retail and Advertising Missed

The retail picture also disappointed. Online sales grew 2% year over year to $68.47B, short of the $69.68B estimate, marking a slowdown from nearly 10% growth one year ago. Advertising revenue rose 11% year over year to $19.64B, below the $20.82B consensus. Both units were hit in part by Amazon pulling its annual Prime Day event forward in several countries from the usual third-quarter window into the second quarter to avoid conflicting with the FIFA World Cup in July.

The timing distortion matters because Amazon's stock is increasingly a valuation bet on higher-margin businesses: cloud, advertising, and AI infrastructure. Retail remains central to the company's scale, but if online sales decelerate, AWS and ads have to do more of the heavy lifting in the earnings narrative. A Prime Day shift may explain the optics, but it does not remove the concern that the consumer side is no longer providing the same cushion.

Fourth-Quarter Guidance Keeps Pressure on the Story

Amazon said Q4 revenue will be in the range of $240B to $247B. The midpoint was below street expectations of $244.5B, and the holiday quarter is typically one of Amazon's biggest. That combination gave the miss more weight than the headline revenue gap alone.

Net income came in at $20.69B, or $1.89 per share, versus $21.19B, or $1.95 per share, a year ago. Amazon said the decrease was driven primarily by a $9.5B pre-tax gain from its investment in the AI startup Anthropic recorded in the 2025 third quarter. Excluding that comparison, the underlying earnings result looked weaker and less flattering than the headline miss.

What the Stock Has to Prove Now

The market is no longer pricing Amazon only as an e-commerce giant. It is pricing it as an AI-infrastructure company with a retail wrapper, and that changes what a miss feels like. The 6% after-hours drop was not a vote against AWS growth. It was a warning that the transition from investment to margin is not yet fully visible.

For the stock, the next few quarters need to prove three things: that AWS growth above 40% can stick, that Trainium and Bedrock move from internal traction to external revenue, and that the massive property-and-equipment spend stops being read as a balance-sheet distraction. If those proof points arrive, the capex story turns bullish. If they do not, Amazon's AI spending may start looking less like growth fuel and more like a drag.