Amazon AWS Growth Accelerates to 39%, but AI Spending Weighs on Shares

Amazon shares fell about 7% in premarket trading on Friday after the company reported third-quarter results that missed Wall Street expectations for revenue and earnings, while capital expenditures continued to climb amid its aggressive AI expansion.Revenue for the quarter ended September 30 rose 12% year over year to $201.9 billion, slightly below analysts' expectations of approximately $202.2 billion. Diluted earnings per share came in at $1.89, compared with the $1.97 consensus.The results highlighted a growing divide within Amazon's business: strong cloud growth contrasted with slower e-commerce and advertising sales, while mounting AI-related expenses raised questions about returns on investment.AWS Growth Accelerates as AI Demand Fuels Cloud ExpansionAmazon Web Services (AWS) remained the standout performer, with revenue climbing 39.3% year over year to $45.98 billion, beating analysts' expectations of $45.29 billion, according to StreetAccount. Growth accelerated from approximately 37% in the second quarter, marking AWS's fastest expansion in nearly five years.AWS operating income increased 55% to $17.77 billion, accounting for nearly 23% of Amazon's total revenue and the majority of its quarterly operating income.CEO Andy Jassy said revenue from AWS's core computing and storage businesses had grown at their fastest pace in several years, indicating that demand extends beyond AI workloads.Amazon has been expanding its cloud infrastructure and strengthening relationships with major AI developers, including Meta and OpenAI. Jassy said the company expects AWS revenue to grow more than 40% in both 2027 and 2028, potentially becoming a trillion-dollar business within the next five to 10 years.Competition is also intensifying. Alphabet and Microsoft have reported accelerating cloud growth as demand for AI computing capacity increases. Amazon is also preparing to make its in-house Trainium AI chips available outside its cloud infrastructure in late 2027, following strong customer demand.E-Commerce and Advertising Growth Lose MomentumAmazon's retail and advertising businesses delivered weaker growth. Online store sales increased just 2% year over year to $68.47 billion, while advertising revenue rose 11% to $19.64 billion.However, the timing of Prime Day complicated the comparison. This year, the shopping event took place in the second quarter in most major markets, whereas it fell in the third quarter in 2025. Amazon estimated that without this calendar shift, its overall third-quarter revenue growth would have been approximately four percentage points higher.Jassy also pointed to continued growth in grocery sales and faster delivery as signs of underlying strength in the retail business. Grocery sales, including fresh food and everyday essentials, have been expanding faster than Amazon's broader store business.Still, the slowdown in reported online sales and advertising growth added to concerns about the company's core retail operations, even as AWS benefits from surging AI demand.AI Investment Drives Cash Flow ConcernsThe biggest concern for investors was Amazon's spending. The company invested approximately $75.9 billion in capital expenditures during the third quarter, primarily to expand data centers and AI infrastructure.Amazon maintained its full-year 2026 capital expenditure forecast of approximately $220 billion, while Jassy indicated that spending would increase meaningfully again in 2027.The investment has weighed heavily on cash generation. Free cash flow over the trailing 12 months turned negative, reaching an outflow of $42.4 billion, compared with a positive $14.8 billion a year earlier. Amazon attributed the decline primarily to increased purchases of property and equipment.Jassy defended the spending, arguing that strong AWS demand supports continued infrastructure investment and that the company expects attractive returns over time. However, investors are increasingly looking for evidence that AI spending can translate into sustainable revenue and cash flow growth.Amazon expects fourth-quarter revenue of $240 billion to $247 billion, compared with analysts' expectations of approximately $244.5 billion. Its operating income forecast of $28.5 billion to $33.5 billion also came in slightly below the roughly $33 billion analyst estimate at the midpoint.For Amazon, AWS growth remains a powerful long-term driver, but investors will be watching whether that momentum can justify the company's increasingly ambitious AI spending plans.