Amazon Shares Drop After Spending Soars, Online Business Slows

Amazon said it spent more than $77 billion on property and equipment in the third quarter, far more than analysts' estimates, while pursuing its effort to build data centers and fulfill demand for artificial intelligence services. Third-quarter sales were lower than anticipated, rising 12% to $201.9 billion.

Revenue at the cloud unit, Amazon Web Services, accelerated for the sixth straight quarter. Online sales gained just 2% to $68.5 billion, the lowest increase since early 2023, when Amazon was still working through the post-pandemic slump in online retail. Advertising sales, a business closely tied to the e-commerce franchise, rose 11%, the slowest rate since Amazon began breaking out such results in 2020.

The results come during a jittery time in the market. Solid increases in cloud sales - long a growth engine for Amazon and its nearest rivals in selling on-demand computing infrastructure - haven't been enough to outweigh concern about the torrid pace of AI expenses.

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Even at Amazon, the world's largest company by sales and a relatively diversified conglomerate, spending led to a free cash outflow of $42.4 billion over the trailing 12 months, the company said Thursday in a statement.

John Tomlinson, an analyst with research firm M Science, said some of the relative weakness in retail is likely the result of Amazon's decision to move its Prime Day sales to June this year, from July. Still,"there's a little bit of a crack in the armor here," he said. "There's a lot of focus on how much companies are spending on AI."

The AWS business has picked up this year, fueled by sales to AI companies like OpenAI and Anthropic, which both rely in part on Amazon servers to power their models. Amazon has also added to its fleet of data centers, boosting its ability to provide computing power to businesses.

Chief Executive Officer Andy Jassy said the company's cloud business was also showing strength beyond AI. The core AWS computing power and storage rental business grew at "their fastest rates in several years," he said on a conference call with analysts after the results were released.

The company said in July that it would likely spend $220 billion in capital expenditures in 2026, up from a prior forecast as a crunch in memory chips curbed supply. Amazon stuck to that forecast on Thursday, though Jassy said the outlays would rise "meaningfully" in 2027.

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On the call, Jassy made the case that the company's main businesses were healthy. Sales of foodstuffs, long a weak spot for Amazon, continue to grow faster than e-commerce overall, with groceries and household supplies accounting for almost $250 billion in sales in the year through September. And Jassy said AWS could grow more than 40% year-over-year in each of the next two years.

None of the commentary reversed the declines in Amazon's shares, which fell about 7% in extended trading after closing at $243.79 in New York. The stock had gained 5.6% this year through Thursday's close.

"AWS's accelerating growth fell short of overblown expectations and the higher competitive bar set by Microsoft and Google," said Sky Canaves, an analyst with Emarketer. "The cloud unit's improving operating margin was one welcome signal, but it may not be sufficient to alleviate concerns about the sharp spike in capex spending and corresponding freefall of its free cash flow."

Investors' disappointment with Amazon's results is similar to the reaction to rival Alphabet Inc.'s report on Wednesday. Alphabet reported search and advertising sales that reinforced investor concerns about AI's threat to its core business, sending its shares down 13% at the close Thursday - the worst day ever for the stock. Also Wednesday, Microsoft Corp. reported a 48% gain in cloud revenue while keeping its capital expenditures in check, soothing investors concerned about lavish spending on AI. Microsoft shares fell less than 1% on Thursday.

Canaves said the Prime Day schedule move "doesn't fully explain the weakness in online stores and advertising growth, suggesting that consumer pressure may be becoming more visible as shoppers pull back where they can, and this has a knock-on effect on advertisers' willingness to spend."

Amazon said sales in the holiday period will be $240 billion to $247 billion. Analysts were looking for $244.5 billion.

Third-quarter operating income increased to $17.8 billion, compared with $11.4 billion in the period a year ago. Amazon projected profit in the holiday quarter of $28.5 billion to $33.5 billion. Analysts, on average, estimated $33 billion.