Amazon's cloud business is accelerating again, and it is spending as if that acceleration is only the start. The company reported third-quarter results on Thursday that showed Amazon Web Services growing faster than it has in nearly five years, a record operating margin for the company as a whole, and a cash outflow large enough to send the shares down anyway.
AWS sales rose 39 percent year over year to 46.0 billion dollars in the quarter ended September 30, reaching a 184 billion dollar annualized revenue run rate, Amazon said in its earnings release. AWS operating income rose to 17.8 billion dollars, from 11.4 billion dollars a year earlier, accounting for the largest share of the company's profit. Chief executive Andy Jassy said the investment in AWS functionality and infrastructure is working, and projected AWS revenue growth rates of over 40 percent in both 2027 and 2028.
The wider company also looked strong on the surface. Net sales rose 12 percent to 201.9 billion dollars, and operating income rose to 28.1 billion dollars, from 17.4 billion dollars a year earlier. The operating margin of 13.9 percent was, Amazon said, its highest ever. North America segment operating income nearly doubled to 8.7 billion dollars, and Jassy pointed to retail share gains and improving margins alongside the cloud growth, noting that there has never been a trillion dollar revenue business and Amazon may have two of them in the next five to ten years.
Investors focused on the other side of the ledger. Earnings came in at 1.89 dollars per diluted share, below the 1.97 dollars analysts expected, according to GeekWire and Reuters reporting, and net income eased to 20.7 billion dollars from 21.2 billion dollars a year earlier. Amazon noted that the prior-year figure included 9.5 billion dollars in pre-tax gains from its investments in Anthropic. More striking was the cash picture: free cash flow was an outflow of 42.4 billion dollars over the trailing twelve months, compared with an inflow of 14.8 billion dollars a year earlier, driven primarily by a 94.8 billion dollar year-over-year increase in purchases of property and equipment that Amazon said primarily reflects investments in artificial intelligence.
The spending is not easing. Amazon kept its plan to spend about 220 billion dollars on capital projects this year, and on the earnings call Jassy said the company expects to spend meaningfully more in 2027, according to GeekWire. He also said AWS has a backlog of 578 billion dollars in contracted future revenue, more than double a year earlier. New AWS agreements signed in the quarter included Meta, Nvidia, OpenAI, Salesforce and Oracle, and Amazon said its Bedrock inference service saw Fortune 500 spending rise nearly sevenfold year over year.
For the holiday quarter, Amazon forecast net sales of between 240 billion and 247 billion dollars, with operating income of between 28.5 billion and 33.5 billion dollars. Reuters reported that the revenue outlook came in largely below Wall Street estimates and that shares fell about 5 percent in extended trading, after closing down 4.3 percent at 243.79 dollars; GeekWire put the after-hours decline at more than 7 percent at one point.
The pattern now repeats across big tech earnings: cloud and AI demand are real and growing fast, but so is the bill to serve them. Amazon's quarter makes both halves unusually clear in one report — a cloud unit growing at 39 percent with a huge contracted backlog, paid for with a cash outflow that a year ago would have been hard to imagine at this company.