Amazon's third-quarter earnings per share and revenue fell short of Wall Street estimates, and the stock dropped more than 7% in extended trading. AWS grew 39%, but AI spending pushed free cash flow to an outflow of $42.4 billion over the trailing twelve months.
Amazon shares plunged more than 7% in extended trading Thursday after the company reported third-quarter results below analyst expectations. Earnings per share came in at $1.89 against $1.96 estimated, and revenue of $201.94 billion trailed the $202.31 billion estimate, according to LSEG.
Retail and advertising also missed. Online sales gained 2% year over year to $68.47 billion, below the $69.68 billion analysts projected, according to StreetAccount. Advertising revenue of $19.64 billion fell short of the $20.82 billion consensus.
AWS growth tops forecasts
AWS sales soared 39% year over year to $45.98 billion, above the $45.29 billion StreetAccount forecast. Growth in the second quarter was about 37%.
AWS also generated $17.77 billion in operating income, up 55%, more than the $16.97 billion consensus. CEO Andy Jassy said in the earnings release that the company expects AWS revenue growth rates of over 40% next year and in 2028. He added, "Our AWS investment in functionality and infrastructure is working."
AI spending drains cash flow
Amazon held its 2026 capital expenditure forecast at $220 billion. The company posted negative free cash flow for the second consecutive quarter, an outflow of $42.4 billion for the trailing twelve month period, up 386% year over year. Amazon said the shortfall was primarily due to higher purchases of property and equipment as a result of AI investments.
Debt is rising as well. Long-term debt has nearly tripled since December to about $173 billion, according to The Motley Fool.
Earlier this week, Microsoft lowered its capex forecast to $170 billion from $175 billion. Alphabet maintained its guidance at $195 billion to $205 billion.
For the fourth quarter, Amazon expects revenue of $240 billion to $247 billion, in line with the $244.5 billion consensus, according to LSEG.
Sources: CNBC, CNBC, The Motley Fool
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