Amazon's AWS Surges 39% as Sales Miss and Free Cash Flow Swings to a $42.4 Billion Outflow

Amazon Web Services sales rose 39% to $46.0 billion in the third quarter, the cloud unit's fastest growth in nearly five years.

AWS did the heavy lifting

AWS segment sales increased 39% year-over-year to $46.0 billion.

That pace was the unit's fastest growth in nearly five years.

The quarter puts AWS at a $184 billion annualized revenue run rate.

AWS operating income rose to $17.8 billion, from $11.4 billion a year earlier.

The cloud unit supplied roughly 63% of Amazon's total operating profit - a TickerGrove calculation.

In the release, chief executive Andy Jassy projected AWS revenue growth of over 40% in both 2027 and 2028.

That is a company projection, not a reported result, and it has not happened yet.

The totals missed what analysts expected

Total net sales rose 12% to $201.9 billion, or 13% excluding currency effects.

Analysts expected $202.2 billion, according to the FactSet tally carried in market reports.

Diluted earnings came to $1.89 a share, short of the $1.97 analysts expected.

Net income fell to $20.7 billion, from $21.2 billion a year earlier.

The comparison is distorted by the year-earlier quarter.

That quarter included $9.5 billion in pre-tax gains on Amazon's Anthropic investments in non-operating income.

Prime Day also moved: the event ran in the second quarter this year, after falling entirely in the third quarter of 2025.

Excluding that shift, Amazon said third-quarter growth would have been about 400 basis points higher.

Record margins, slower retail growth

Operating income climbed to $28.1 billion, from $17.4 billion.

The operating margin reached 13.9%, which Amazon called its highest ever.

North America sales rose 6% to $112.9 billion, and the segment's operating income rose to $8.7 billion.

International sales rose 5% to $43.1 billion, or 8% excluding currency effects.

International operating income rose to $1.6 billion, from $1.2 billion.

Online stores sales grew just 2% to $68.5 billion, held back by the Prime Day shift.

Advertising sales grew 11% to $19.6 billion, or 12% excluding currency changes - down from 22% on that basis a year earlier.

Amazon expects advertising growth to return to the high teens in the fourth quarter.

The AI build-out consumed the cash

Operating cash flow rose 29% to $168.3 billion over the trailing twelve months.

Free cash flow swung to an outflow of $42.4 billion, against an inflow of $14.8 billion a year earlier.

Free cash flow is the cash left after capital spending.

Amazon attributed the swing mainly to a $94.8 billion year-over-year rise in net purchases of property and equipment.

The release ties that increase primarily to artificial intelligence investment.

Capital expenditure reached $75.9 billion in the third quarter alone.

Amazon kept its full-year guide: 2026 cash capital expenditures of approximately $220 billion.

Long-term debt reached $173.1 billion at September 30, up from $65.6 billion at the end of December.

Guidance and the market's verdict

For the fourth quarter, Amazon guided net sales of $240.0 billion to $247.0 billion.

It guided operating income of $28.5 billion to $33.5 billion, against $25.0 billion a year earlier.

The stock had already closed at $243.79 on Thursday, down 4.25% in the regular session.

In an early after-hours snapshot published at 4:23 p.m. Eastern time, shares fell about 6% further.

That snapshot is an early print, not a closing after-hours level.

What remains unknown

Amazon gave no capital-spending guide for 2027 in the release, so next year's cash burn is unquantified.

Whether advertising growth actually returns to the high teens in the fourth quarter is unproven.

The release does not say when free cash flow turns positive again.

What to watch is the holiday quarter against the $240 billion to $247 billion sales guide, and any 2027 spending signal.

AWS's projected growth above 40% in 2027 and 2028 also remains a forecast to be tested, not a result.