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Amazon’s AWS cloud revenue grew strongly in the third quarter, but free cash flow turned negative due to heavy AI capital spending and a slowdown in e-commerce, and the stock price fell sharply after the market closed.
Amazon (Amazon ) AWS cloud revenue grew 39% in the third quarter, but AI spending increased and e-commerce growth slowed, causing the stock price to fall nearly 7% after hours. In the past year, the free cash flow gap reached US$42.4 billion, and online store revenue grew by only 2%, causing the market to worry whether the core business can support huge AI investments.
Amazon announced Thursday that third-quarter revenue rose 12% from the same period last year to $201.9 billion, and net profit was $20.7 billion, falling short of analyst expectations compiled by FactSet. Operating profit increased to US$17.8 billion from US$11.4 billion in the same period last year.
Amazon estimates that revenue at the end of the fourth shopping season will be US$240 billion to US$247 billion, market expectations are US$244.5 billion; Operating profit is expected to be between US$28.5 billion and US$33.5 billion, and analysts’ average estimate is US$33 billion.
AWS has accelerated its growth for six consecutive quarters but still failed to meet market expectations.
AWS revenue in the third quarter was US$46 billion, an increase of 39%, the sixth consecutive quarter of accelerated growth, benefiting fromOpenAI Anthropic and other AI industry needs, as well as new data centers to expand the supply of computing power.
CEO Jassy said AWS’s growth is not only driven by AI, but also by its core computing and storage rental businesses, which have achieved the fastest growth in several years.
He said: “We believe AWS can grow by more than 40% in 2027 and 2028, and become a US$1 trillion annual revenue business in the next five to ten years.”
However, Evercore ISI analyst Mahaney said the market had originally expected AWS to further accelerate its growth. “I think the market’s expectations may have been a little unrealistic this time.”
eMarketer analyst Sky Canvas also believes that although AWS has accelerated its growth, it has not yet met the market’s high expectations, nor has it overcome the competitive threshold raised by Microsoft and Google. Although the improvement in cloud operating profit margins is good news, it may not be enough to overcome concerns about increased capital expenditures and a significant decline in free cash flow.
Full-year capital expenditure will increase by US$220 billion next year
Amazon’s capital spending reached US$75.9 billion in the third quarter; Expenditures on real estate and equipment exceeded US$77 billion, far exceeding analysts’ estimates.
The company maintained its forecast of $220 billion of capital spending this year, primarily for AI data centers. The budget was increased from the original $200 billion in July due to low memory supplies and rising costs. JC said spending will increase “significantly” in 2027.
The heavy investment has shrunk Amazon’s free cash flow to negative $42.4 billion in the last 12 months to the end of September. Even with diversified businesses and huge revenue scale, we still face the problem of AI manufacturing continuing to burn cash.
The market also continues to react to the technology giant’s recent test. Alphabet’s share price declined due to lower-than-expected search and advertising performance and increased AI spending; Microsoft’s strong cloud growth and lower-than-expected capital spending eased market concerns a bit.
E-commerce growth at 3 year low, advertising growth also slow
