Amazon has released its third-quarter earnings, and at first glance, the figures appear quite strong. The company’s revenue rose 12% year-over-year to $201.9 billion, while its operating profit surged 61% to $28.1 billion. The operating margin reached 13.9%—the highest level in the company’s history.
Yet, instead of applauding these robust numbers, the market responded with a sell-off.
So, what is it that concerns investors about a company like Amazon, which continues to sustain its growth?
AWS: The True Powerhouse
Amazon’s cloud computing division, AWS, grew 39.3% year-over-year in the third quarter, reaching $46 billion in revenue. Notably, this growth has accelerated for the sixth consecutive quarter. AWS generated an operating profit of $17.8 billion, with an operating margin of 38.7%.
Even more significant is the AWS backlog, which has reached $578 billion—marking triple-digit growth on an annual basis.
CEO Andy Jassy’s outlook is highly ambitious: Amazon anticipates that AWS could grow by more than 40% annually in 2027 and 2028. In the long term, the company aims for AWS to evolve into a business unit capable of generating $1 trillion in annual revenue over the next 5 to 10 years.
This goal clearly underscores Amazon’s potential in the realms of artificial intelligence and cloud computing.
Why, then, is the market selling? The Investment Bill Is Extremely Steep
This is where the critical part of the story begins. Amazon maintains its projection of approximately $220 billion in cash capital expenditures (CapEx) for 2026. In the third quarter alone, cash CapEx reached $75.9 billion. Management anticipates that spending will be significantly higher in 2027.
In short, Amazon does not want to fall behind in the artificial intelligence race; it is investing massive amounts of capital into data centers, servers, chips, and infrastructure.
However, investors are now asking a different question:
When will such substantial investment generate sufficient cash flow and sustainable profitability?
Moreover, management acknowledges that an increasing share of AI-related services within AWS could exert pressure on margins in the near term, as AI-driven business lines may carry lower margins compared to existing services.
What is the situation in other business segments?
Advertising revenue reached $19.6 billion, marking a 12% year-over-year increase. Management expects advertising growth to return to the high-teens percentage range in the fourth quarter.
On the logistics front, fuel inflation and transportation costs are creating pressure; the company is attempting to offset these expenses through efficiency initiatives.
Costs associated with the "Amazon Leo" project also represent a near-term headwind. Management intends to continue recording the bulk of the expenses related to this project in the fourth quarter.
Fourth-Quarter Outlook
Amazon expects fourth-quarter revenue to fall within the range of $240 billion to $247 billion. The operating profit forecast stands at $28.5–33.5 billion.
These figures indicate that the company’s growth story remains intact. However, high capital expenditures, rising infrastructure costs, and the impact of artificial intelligence-related initiatives on profit margins will be closely monitored in the coming period.
It would be inaccurate to characterize Amazon’s earnings report as weak. Revenue is growing, operating profit is showing strong gains, AWS is accelerating, and the order backlog has reached record levels.
Yet, the market is no longer looking solely at growth figures. Amazon faces a substantial investment bill; the company is targeting growth of over 40% for AWS by 2027 and 2028, but achieving this will require a corresponding increase in spending.
The sharp decline in pre-market trading should not be interpreted as a deterioration in the company’s core business operations. *Beware of potential "head fakes" at the market open!* Beyond determining whether the sell-off will persist, it is essential to understand why buyers have pulled back despite the strong earnings figures.
Amazon must now demonstrate to investors not only its growth but also the returns on the massive investments it is making.
