Amazon misses on sales and profit as AI spending turns cash flow negative; shares down 7%

The numbers in context: Revenue grew 12% from a year earlier, Amazon said. Operating income rose to $28.1 billion from $17.4 billion, a record 13.9% margin. Net income fell to $20.7 billion from $21.2 billion, which Amazon said was mainly because last year's quarter included $9.5 billion in gains on its Anthropic stake. Amazon said moving Prime Day into the second quarter cut third-quarter growth by about 4 percentage points.

How it compares this week: Alphabet reported a larger cash shortfall than analysts expected and its shares fell about 12%, on course for their biggest post-earnings drop, CNBC reported. Microsoft's free cash flow fell but stayed positive, its capital spending came in below expectations, and its stock rose. With free cash flow now negative, Amazon looks closer to Alphabet's side of that split.

The strongest case for Amazon's spending: AWS, its cloud unit, grew 39% to $46.0 billion, its fastest growth in nearly five years, and its operating income rose to $17.8 billion from $11.4 billion. Deutsche Bank noted that management pointed to AWS growth of more than 40%, and Morgan Stanley called the quarter mostly an expectations miss. Morgan Stanley, Deutsche Bank, Barclays, Bank of America and Goldman Sachs all kept buy-equivalent ratings, CNBC reported.

The strongest case against: Analysts at Truist have warned that Amazon and its cloud peers risk running negative free cash flow under the weight of AI infrastructure costs, and Cantor Fitzgerald trimmed its price target before the report. Skeptics argue spending is growing faster than the profits it is meant to produce.

What the evidence shows: The revenue miss itself was small, about $370 million, or roughly 0.2% below the LSEG estimate, and AWS revenue was roughly in line. Deutsche Bank said investors had hoped for AWS growth closer to 43%. For the fourth quarter, Amazon guided to $240 billion to $247 billion in sales and $28.5 billion to $33.5 billion in operating income.

What's still unknown: Premarket moves often change once regular trading opens. It's also not yet clear when the AI spending will lift free cash flow back above zero, and Amazon hasn't given a 2027 capital spending figure.

Sourcing: CNBC (Annie Palmer, Oct. 29) for EPS, revenue, LSEG estimates and the roughly 9% after-hours drop; 24/7 Wall St. live blog (Thomas Richmond, Oct. 29) for the same headline numbers, the 12% revenue growth, the 3% EPS decline, Amazon's $197B-$202B guidance, the $53.1B Q2 capex and -$7.6B trailing free cash flow; CNBC (Arjun Kharpal, Oct. 29) for the Alphabet and Microsoft comparison; Investing.com for the $220B capex forecast, the closing context, Truist and Cantor; 24/7 Wall St. also for the Q2 AWS figure and the Jassy quote. Amazon's own release and 8-K were not yet indexed when drafted; AWS, capex and guidance are unconfirmed and deliberately left out. After-hours prices will change. Not investment advice.