Amazon shares fall 7.3% in after-hours trading over AI capex outlook

Amazon reported third-quarter results after the US close on October 29. Revenue came in at $201.94 billion, below the market expectation of $202.31 billion, and EPS was $1.89 against an expected $1.96. Operating profit nonetheless rose 61.5% year over year to $28.08 billion, more than 7% above consensus, lifting the operating margin to 13.9%, the highest in the company's history.

AWS was the clear standout. The cloud unit posted revenue of $45.984 billion, up roughly 39% from $33.006 billion a year earlier (one report gives the growth as 39.3% on net sales of $45.98 billion, about 1.3% above analyst estimates), the fastest quarterly pace in nearly five years. Operating profit reached $17.773 billion, up about 55%, and the operating margin climbed from 34.6% to 38.7%. The annualized revenue run rate stood at about $184 billion at quarter end, up 8.9% from the end of the second quarter. On the earnings call, CEO Andy Jassy framed the current growth as a self-reinforcing 'flywheel': leading functionality and security pull customers onto the cloud, centralized cloud data and applications in turn drive AI inference demand, and that inference fuels consumption of core compute, storage and networking, which supports continued reinvestment in AWS's foundational capabilities.

Looking ahead, Jassy said AWS should grow more than 40% in both 2027 and 2028, and described a path to $1 trillion in annual revenue within five to ten years. The backlog stood at $578 billion, growing at a triple-digit rate, and management stressed that AI demand will keep pushing capital spending higher, with Jassy calling AI a once-in-a-lifetime opportunity.

The market reaction was negative, focused on the expanding AI spending and free-cash-flow outflows. Shares initially dropped as much as 12% after hours following the release, and were down about 7% at the time of writing.