Despite cloud boom, Amazon’s stock falls on disappointing earnings and revenue miss

Amazon's stock plummeted more than 7% on Friday after the tech giant reported disappointing earnings and revenue that fell short of analysts' expectations. The company's third-quarter earnings before certain costs came to just $1.89 per share, missing the $1.96 per share target set by Wall Street. Revenue for the period amounted to $201.94 billion, up 12% year-over-year but below the consensus estimate of $202.31 billion.

Net income dropped to $20.69 billion, down from $21.19 billion in the same period last year. The decline was primarily due to a $9.5 billion pretax gain from Amazon's investment in the AI startup Anthropic PBC, which was not recurring. Amazon's Chief Financial Officer, Brian Olsavsky, reiterated the company's forecast of $220 billion in capital expenditures for the year, but the fact that the company spent $77.3 billion in the third quarter far exceeded analysts' estimates of $58.7 billion.

The heavy spending on AI infrastructure, including property and equipment purchases, negatively impacted the company's free cash flow, which was $42.4 billion in the quarter. While Amazon's cloud computing unit, AWS, showed strong growth with a 39% increase in sales to $45.98 billion, other segments like retail and advertising fell short of expectations.

Retail sales grew by only 2% to $68.47 billion, below the $69.68 billion target, while ad revenue grew by 11% to $19.64 billion, missing the $20.82 billion forecast. Amazon CEO Andy Jassy stated that the company plans to "spend more meaningfully in 2027" and has a "clear line of sight to attractive financial returns." However, investors were more concerned about the impact of spending on cash flow.

Jassy highlighted the growing traction in AWS, including its AI model marketplace, Bedrock, and the success of its AI chips, Graviton and Trainium. He expects AWS sales growth to accelerate to over 40% in the next year and in fiscal 2028. Despite the strong AWS performance, Amazon remains under pressure to demonstrate more substantial returns from its ballooning capital expenditure spending.