Other content from this week includes:
Table of Contents
a. Demand
Slightly missed revenue estimates & beat guidance by 1.2%.
Beat AWS revenue estimates by 1.3%. 39.3% Y/Y growth was AWS’s fastest in nearly 5 years, and it got there while lapping a stretch of heavy capacity additions.
North America revenue slightly beat estimates. International revenue slightly missed.
12.1% Y/Y revenue growth was 13% FX neutral (FXN). Currency was a $0.9B headwind.
As a reminder, Prime Day moved into Q2 for most large countries this year after landing entirely in Q3 last year. Without that shift, Y/Y growth would have been about 400 basis points (bps; 1 basis point = 0.01%) higher. The deceleration from Q2 looks a lot worse than it really is. Q2 borrowed some of Q3’s growth.
International grew 5.4% Y/Y to $43.1B, or 8% FXN.
Andy Jassy gave us this line on the call: “There has never been a trillion dollar revenue business, and we may have two of them in the next 5-10 years.” As long as this monumentally impressive AI revolution keeps zooming, that no longer seems like a crazy bet. 40% growth in 2027 and 2028 (which is what they expect; more later) gets AWS to roughly $360B and they see demand signals and multi-year visibility as excellent.
b. Profits
Beat EBIT estimates by 7% & beat guidance by 15%.
EBIT margin expanded 420 bps Y/Y to 13.9%. All three segments expanded margins Y/Y.
Met GAAP EPS estimates.
GAAP net income dipped Y/Y to $20.7B, but that’s noise. Q3 2025 included a $9.5B pre-tax gain on Amazon’s Anthropic stake. Net income margins in the tables below for Q2-26 and Q3-25 exclude equity gains to make the comparisons more useful.
Trailing 12-month free cash flow (FCF) was -$42.4B vs. -$7.6B last quarter and +$14.8B a year ago. That’s mostly AI CapEx. It’s ugly… but also an inevitable byproduct of aggressively investing amid what they confidently view as a generational opportunity. Cash flow statements are always very ugly while the infrastructure is getting laid. They’re adamant that these costs will come with great returns and they are not slowing down.
On AWS EBIT margin:
Rapid AI growth is weighing a bit on margins as that is currently less profitable than its core cloud business. The gap, however, is closing with the help of things like its custom chips and constant infrastructure performance optimizations.
c. Balance Sheet
$114.2B in cash, equivalents & marketable securities.
$173B in debt. That’s up from $129B last quarter, with the $35B in U.S. and Canadian bonds it raised right after Q2 a big source of the rise.
0.8% Y/Y dilution.
d. Guidance & Valuation
Q4 revenue guidance represents 14% Y/Y growth at the midpoint and slightly missed estimates. Q4 EBIT guidance missed estimates by 5.8%. I’m not worried about that. Part of it is because their Amazon Leo (low earth orbit satellite) project costs won’t be capitalized until Q1-2027. It was originally supposed to happen during Q4-2026, which would have lowered OpEx by somewhere around $1B. That was the Y/Y cost increase tied to Leo in Q2 so that’s where my estimate comes from. If half of that cost moved to CapEx, the miss would have been around 4.3% instead. Still not ideal, but Amazon is as consistent a sandbagger on profit guidance as there is in mega-cap tech. The Q3 guide looked light too, and Amazon just cleared it by 15% (and beat consensus by 7%). That’s the pattern, and it’s a pattern analysts know well. They basically pencil in a beat every 3 months at this point, as we talked about in our earnings season preview. Most importantly, this company continues to reliably compound at gigantic scale, with expanding income statement margins and clear signs that AI CapEx will be worth it (more later).
Other important guidance notes:
As briefly mentioned, Amazon expects AWS to grow revenue by at least 40% in 2027 and 2028.
Reiterated $220B in 2026 CapEx and that they’ll spend “meaningfully more” in 2027.
Amazon trades for about 25x forward EPS. EPS is expected to grow by 28% this year, 14% next year and 28% the following year. FCF is expected to be negative until 2028.
e. Call & Release
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