Amazon (AMZN) Q3 2026 earnings review
Amazon's cloud grows 39%, but spending pushes its cash flow negative
Amazon's cloud grows faster every quarter, but the spending behind it now exceeds the cash the company earns. AWS sales rose 39%, and chief executive Andy Jassy projects growth above 40% in each of the next two years. Operating profit reached a record share of sales. Amazon bought $76 billion of equipment in three months and borrowed to pay for it.
| AWS sales | $46.0B +39% from a year ago |
|---|---|
| Sales growth with the Prime Day move removed | about 16% 12% as reported |
| Free cash flow, past twelve months | −$42.4B +$14.8B a year earlier |
| Fourth-quarter sales outlook | $240–247B middle of the range: 14% growth |
⚖️ Verdict: 🟢 Bullish
The story got better because the cloud now has a dated forecast that this quarter supports. The $220 billion spending plan did not rise again. The bad news: advertising growth halved, and the Prime Day move explains only part of it. By our math the unchanged plan also needs fourth-quarter spending to fall by more than a third, which Amazon has not explained.
The question now is whether the spending plan limits what Amazon spends or merely describes it. If Amazon spends only against signed demand, outlays drop to about $48 billion, and if not, the plan rises again and the borrowing continues. The fourth-quarter cash flow statement will tell.
🐂 Bull Case
AWS Sales Accelerate Again, Up 39%
AWS, Amazon's cloud computing arm, grew sales 39% from a year ago to $46.0 billion, "its fastest growth in nearly five years". The rate has climbed every quarter for more than a year. Chief executive Andy Jassy now projects "revenue growth rates of over 40% both in 2027 and in 2028".
The quarterly step disagrees: AWS added $3.8 billion over the previous quarter, less than the spring's record. The annual rate still rose because this quarter's 8.9% step beat the 6.9% of a year earlier.
"There has never been a trillion dollar revenue business, and we may have two of them in the next 5-10 years," Jassy said. AWS sells $184 billion a year today. Two years at 40% would take it to about $360 billion, by our math, so the rest depends on growth continuing well past 2028.
What to watch: fourth-quarter AWS growth, the contracted sales not yet delivered, and a fresh figure for the custom chips business, which the release omits. A rate near 40% with that book still rising would show the target rests on signed demand.
Record Margin Even Without Last Year's One-Off Charges
Amazon kept 13.9 cents of operating profit from every dollar of sales, its "highest operating margin ever". Last year's quarter flatters the comparison, because it carried $4.3 billion of charges for an FTC settlement and severance. Strip those out, by our math, and profit still rose 29%, with the margin up 1.9 percentage points.
- Cost of goods: 46.8% of sales, down 2.4 points
- Delivery and warehousing: 14.9% of sales, down 0.5 points
- Sales and marketing: 5.8% of sales, down 0.7 points
- Technology and infrastructure, which carries data-centre depreciation: 17.2% of sales, up 1.2 points
The gain comes from the stores as much as the cloud. North America earned 7.7 cents per sales dollar and International 3.7, both above a year ago. The one rising cost line is technology and infrastructure, so depreciation from the data-centre build is already absorbing part of what the retail side adds.
What to watch: fourth-quarter operating margin against the 12.7% that the middle of the outlook implies, by our math. A figure above it would mean store efficiency is still outrunning data-centre depreciation.
Retail Growth Holds After Averaging Out Prime Day
Amazon moved its Prime Day sale from July to June this year, so the summer quarter looks weak and the spring one strong. North America sales grew only 6% from a year ago and International 5%. Chief executive Andy Jassy says Amazon continues to "capture more retail market segment share with improving margins".
Adding the two quarters together removes the distortion, by our math: North America grew 11% over the combined period, the same as a year earlier, and International 10%. Paid units rose 12%. Amazon plans to hire more than 300,000 people for the holidays, so the stores are not slowing.
What to watch: North America sales growth in the fourth quarter, which contains no Prime Day in either year. A rate near 11% would confirm the stores kept their pace.
🐻 Bear Case
Spending Runs Ahead of the $220 Billion Plan
Amazon repeated that it expects 2026 cash spending on property and equipment of "approximately $220 billion". The quarter sits awkwardly beside that sentence, because the company spent $75.9 billion net of incentives in three months, more than double a year ago. The nine-month total is $172.2 billion.
By our math the plan now leaves about $47.8 billion for the fourth quarter, a 37% drop from the summer pace. Amazon has said it still lacks capacity, so either spending falls in the holiday quarter or the plan rises again, as it did in July from $200 billion.
Borrowing paid for the gap, because operating cash flow covered only 56% of the spending. Long-term debt reached $173.1 billion, from $65.6 billion at the start of the year, and interest expense more than tripled. Free cash flow for the quarter was negative $33.5 billion, by our math.
What to watch: fourth-quarter purchases of property and equipment on the cash flow statement. A figure near $48 billion would show the plan is a real limit and that Amazon spends only against signed demand.
Amazon Put Another $24 Billion Into Its AI Customers
Amazon is both supplier and investor to the two AI labs behind the largest cloud contracts it has disclosed, OpenAI and Anthropic. In the quarter it paid $24.0 billion for acquisitions and stakes in private companies. That covers the $21.3 billion it still owed OpenAI at the end of June. The stakes support the cloud's growth, but they tie the order book to customers Amazon helped fund.
This quarter the stakes stopped lifting profit: other income was a $0.7 billion loss, against a $10.2 billion gain a year ago. That is why net income slipped slightly while operating profit rose 61%. The holdings kept gaining value, though. Amazon recorded a $36 billion after-tax gain on debt securities straight into equity, the line where it carries its Anthropic convertible notes.
What to watch: the share of contracted cloud sales owed by the two labs, which Amazon has never disclosed. Any figure would let readers size a concentration the filing's order book total hides.
Advertising Slowed More Than Prime Day Explains
Advertising, the sponsored listings and video ads Amazon sells to brands, grew 11% from a year ago, after a 26% rise in the spring. Amazon blames "timing anomalies primarily related to Prime Day (and a couple other timing factors)", and expects growth "in the high teens" in the fourth quarter.
The Prime Day shift moved ad spending from one quarter to another, so adding the two quarters should restore the old pace. It does not: combined sales for the spring and summer quarters rose 18%, by our math, against 22% to 24% in each of the four quarters before. Something beyond the calendar slowed the business.
What to watch: fourth-quarter advertising growth against the high-teens outlook. A reading below it would mean the slowdown sits in the business, not the calendar.
Risks this quarter didn't answer
Six standing concerns got no new numbers in the press release; several wait for the quarterly filing and the call.
- Contracted cloud sales not yet delivered: $496 billion in June; the filing will give September's figure.
- AI revenue inside AWS: above $25 billion a year in July; this release gives usage multiples, no dollars.
- Third-party shopping agents: Alexa for Shopping reached 400 million customers, but whether rivals' agents take the discovery step needs the call.
- The $17.5 billion term loan: due to be drawn by September 30; the release does not say whether it was.
- Memory chip prices, which lifted the spending plan in July: now a listed risk factor with no cost figure.
- The trade commission case over AWS's Nitro servers: no update.
👓 Other Themes
Leo Satellites and Zoox Robotaxis Begin Charging Customers
Amazon says its Leo satellite internet service remains "on track to begin initial service" later this year, and AT&T has agreed to offer Leo connections to businesses and public bodies. Zoox, its robotaxi unit, started charging for rides in Las Vegas and now operates in 12 US cities. Neither reports revenue yet, and the release gives no cost figure for either.
Currency Trims Sales, Memory Chips Join Risk List
Exchange rates took $0.9 billion off the quarter's sales, about half a percentage point of growth. Amazon expects a further 0.6-point drag in the fourth quarter. The outlook's list of factors that could move results now names "resource and supply volatility, including for memory chips", the component whose price pushed the spending plan up to $220 billion in July.
💲 Other KPIs
Growing far faster than sales: up 61% from a year ago, while sales rose 12%. The line is money that customers, vendors and partners owe Amazon. By our math it has climbed from under 9% of trailing twelve-month sales a year ago to over 12% now, rising at every reported quarter-end.
Up 0.8% from a year ago, the same slow rise as last quarter. Amazon bought back no shares, and $6.1 billion of its 2022 authorisation sat unused at the end of June. Stock-based pay cost $5.4 billion in the quarter, 12% more than a year ago, so the count keeps growing without buybacks.
Up 25% from a year ago, after rises above 30% in the two quarters before, so growth has eased even as spending accelerates. Depreciation spreads the cost of past purchases over the life of the equipment, so each quarter's data centres add to it for years. At 10.4% of sales it is still only 28% of the quarter's cash outlay on equipment.
🔮 Guidance
New. The plan calls for sales growth of about 14% at the middle of the range, after 12% this quarter. Neither year's fourth quarter contains Prime Day, so the comparison is clean. Currency should cost about 0.6 points. Amazon beat the middle of its last three sales outlooks by 2.4% on average, but this quarter it landed inside the range for the first time in that period.
New. The middle of the range, $31.0 billion, is 24% above last year's fourth quarter. That quarter carried $2.4 billion of charges for tax disputes, severance and store write-downs. Against the clean figure the rise is 13%, by our math. The range implies an operating margin at the middle below this quarter's record but above last year's fourth quarter. The outlook assumes no gains or losses from energy contracts.
Unchanged. Amazon still expects to spend "approximately $220 billion" this year on property and equipment, net of incentives. Nine months have used $172.2 billion, so by our math about $47.8 billion remains for the fourth quarter. That would be 37% below this quarter's outlay. The plan has moved once already, from $200 billion in February, after memory prices rose.
New. Amazon expects advertising sales to grow "in the high teens" in the fourth quarter, excluding currency, after 12% this quarter. The company says the Prime Day move and "a couple other timing factors" held the summer figure back, without naming them. Even the high-teens outlook sits below the 22% pace the business kept through the start of this year.
❓ Key Questions
Will fourth-quarter spending really fall to $48 billion?
The unchanged $220 billion plan implies a 37% drop from this quarter's pace, by our math, in a period Amazon has said is still short of capacity. Either the plan caps spending or it will move again.
How big is the cloud order book, and who owns it?
Contracted sales not yet delivered stood at $496 billion in June, lifted by two deals with companies Amazon has invested in. September's figure and the two labs' share belong in the quarterly filing and on the call.
What are the other timing factors behind advertising's slowdown?
The release blames Prime Day and "a couple other timing factors" for 12% growth without naming them. Two quarters combined still show a slowdown to 18%, so the unnamed factors decide whether the high-teens outlook holds.
Did Amazon draw the $17.5 billion term loan by September 30?
The loan agreed in June lapsed if undrawn by quarter-end. Long-term borrowing of $48.1 billion in the quarter does not say whether it included the loan, and next year's funding plan depends on it.
How much of 2027's cloud growth is already contracted?
Chief executive Andy Jassy's two-year forecast of over 40% growth is his first with dates. Whether it rests on signed commitments or expected demand decides how much of the capacity Amazon is building is already spoken for.