What did Amazon report in its Q3 2026 earnings?
Amazon reported net sales of $201.9 billion for the quarter ended 30 September 2026, up 12% from $180.2 billion a year earlier. Operating income rose to $28.1 billion from $17.4 billion. The 13.9% operating margin was the highest in the company's history, according to the results release published on 29 October.
The headline numbers still missed expectations. Earnings per share were $1.89 against the $1.96 forecast by analysts polled by LSEG, CNBC reported. Revenue of $201.94 billion also fell just short of the $202.31 billion consensus.
Net income slipped to $20.7 billion from $21.2 billion, or $1.89 per diluted share versus $1.95. Amazon said the decline was driven mainly by a $9.5 billion pre-tax gain from its Anthropic investment. That gain was booked in the third quarter of 2025.
Prime Day timing complicates the comparison. Amazon moved the sale into the second quarter for most large countries this year. The 2025 event fell entirely in the third quarter. Excluding that shift, revenue growth would have been about four percentage points higher, the company said.
By segment, AWS sales rose 39% to $46.0 billion. North America sales rose 6% to $112.9 billion, and international sales rose 5% to $43.1 billion, or 8% excluding currency changes.
Investors marked the stock down more than 6% in extended trading, CNBC reported. Amazon guided fourth-quarter revenue to $240 billion to $247 billion, a 12% to 16% increase. The midpoint of that range was below the $244.5 billion analysts expected.
Reuters framed the sell-off as AI spending eclipsing the fastest cloud growth in years. The same pattern has appeared across Big Tech this earnings season, where accelerating cloud revenue and rising capital budgets arrive together.
Amazon's release also flagged a timing effect in advertising. Ad revenue grew 12% excluding currency changes. The company said the Prime Day shift and two other factors depressed the reported rate.
Why did Amazon's free cash flow turn negative?
The cash flow statement explains the sell-off. Amazon's trailing twelve-month free cash flow was an outflow of $42.4 billion, compared with an inflow of $14.8 billion a year earlier.
Operating cash flow actually rose 29% to $168.3 billion. The swing came from a $94.8 billion increase in purchases of property and equipment. That figure is net of sales proceeds and incentives, and Amazon attributes the increase to investment in artificial intelligence.
Capital expenditure reached $77.3 billion in the quarter, up from $35.1 billion a year earlier, CNBC reported. That was well above the $58.7 billion analysts had modelled, according to FactSet.
Amazon still expects 2026 cash capital expenditure of about $220 billion, unchanged from previous guidance. Jassy told analysts the company expects to spend meaningfully more in 2027. He said Amazon has a "clear line of sight to attractive financial returns," CNBC reported.
The bill arrives before the returns do. Depreciation and amortisation rose to $20.9 billion in the quarter from $16.8 billion a year earlier, according to the release. Data centres and chips bought today will weigh on reported profit for years.
It was the second consecutive quarter of negative free cash flow. The prior period had an outflow of $7.6 billion, CNBC reported.
Rivals are making similar bets, though Microsoft trimmed its plan. It lowered its 2026 capex forecast to $170 billion from $175 billion, while Alphabet held guidance at $195 billion to $205 billion. Amazon kept its $220 billion plan and signalled a larger one for 2027.
Executives present the spending as demand-led. Jassy pointed to AWS growth and the customer agreements as evidence that the new capacity will be used.
How fast is AWS growing, and what is driving it?
AWS grew 39.3% to $46.0 billion, its fastest rate in nearly five years. It ended the quarter at a $184 billion annualised run rate. CNBC said it was the strongest growth since the fourth quarter of 2021.
The unit generated $17.8 billion of operating income, up from $11.4 billion a year earlier. It now accounts for almost 23% of Amazon's total revenue, a record, according to CNBC.
Amazon credits AI workloads. It said Fortune 500 spending on Bedrock, its model marketplace, was nearly seven times higher than a year earlier. Total token volume on the service grew nearly 17 times.
The company signed new AWS agreements with Meta, Nvidia, OpenAI, Salesforce, Oracle and others since its last earnings announcement, the release says. It also added OpenAI's GPT-6 models and Anthropic's Claude Opus, Sonnet and Haiku 5.5 to Bedrock.
Custom silicon is the strategic lever. Jassy said Amazon's chip business "continues to grow triple-digit percentages year over year," CNBC reported. Trainium, its AI accelerator, will be offered outside AWS starting late in 2027.
"With Trainium demand so strong, customers continue encouraging us to make it available outside of AWS," Jassy told analysts.
Management is guiding for more. Jassy said AWS can grow "north of 40%" in each of 2027 and 2028. He expects it to become a trillion-dollar revenue business within five to 10 years. The release puts projected growth at "over 40%" in both years.
Growth is accelerating across the cloud market. Google Cloud revenue more than doubled in the third quarter. Microsoft's Azure is now 72% the size of AWS, up from 58% two years ago, CNBC reported.
Bedrock is not the only AI service growing. Amazon said tens of thousands of customers use Bedrock AgentCore, its managed agent platform. They deployed twice as many agents in the third quarter as in the previous three quarters combined.
It also released Strands harness, an open-source toolkit for agent tasks. Amazon says it cuts costs by 32% through better token efficiency. Amazon previewed Strands Box, a sandbox for controlling agent behaviour. Lambda, its serverless compute service, passed a $1 billion annualised run rate.
Jassy said core compute and storage grew at their fastest rates in several years. That suggests the AI boom is lifting demand for ordinary cloud services too. AWS growth was about 37% in the second quarter, so the third quarter marked a further acceleration.
Why does Andy Jassy say AI shopping agents are not a threat yet?
Jassy used the call to play down a newer competitive threat: AI agents that shop on a customer's behalf. He said the experience was "still not great, nor more convenient than coming to a retailer directly," Fortune reported.
The remark followed a public standoff with Meta. Meta launched its Muse assistant on 8 September. It billed Muse as an agent that "doesn't just answer questions, it actually does the work," according to Mashable.
Muse is more than a chatbot. Meta's launch materials said it can pay for purchases using Link by Stripe, with Shop Pay planned as an alternative, Mashable reported. Its popularity explains why Amazon acted: Muse quickly became the top free app on Apple's App Store, displacing ChatGPT, according to Fortune.
By 20 September, Amazon was blocking Muse from its store, GeekWire reported. Shoppers saw a warning that "continued access by an unauthorized AI agent violates Amazon's Conditions of Use," Mashable reported.
An Amazon spokesperson told Mashable that Muse did not identify itself, captured and stored customers' credentials, and scraped account data. "We've requested that Meta remove Amazon from the experience," the spokesperson said.
Meta has signed retail partners including Shopify, Walmart and Best Buy, but not Amazon, Fortune reported. The dispute matters because agent shopping bypasses the product pages and advertisements that generate much of Amazon's retail profit.
Meta says adoption is real. Mark Zuckerberg said more than 10 million people in the US and Canada had set up Muse. He said more than a quarter of users shop with it, and that average purchases exceed $200, according to Fortune.
Zuckerberg's response to Amazon was conciliatory. "Obviously, not everyone wants to be an early adopter. That's fine," he said, adding that Meta would work with partners on terms that suit them.
Amazon's counter is its own agent. Alexa for Shopping was used by more than 400 million customers in the past 12 months. Interactions rose 570% year over year, the release says. Jassy added that US customers who use it spend 50% more per order, Fortune reported.
Amazon added more than 100 capabilities to Alexa for Shopping in the quarter. They cover tasks such as gift lists, Subscribe & Save changes and payment management.
He also said outside agents did not cause the company's weaker advertising result. Advertising revenue rose 11% to $19.64 billion but missed the $20.82 billion consensus, CNBC reported.
Amazon is also testing "Buy for Me," an agent that purchases from its own site and from third-party sellers, Mashable reported.
How is Amazon's retail business performing?
Retail growth was slow. Online store sales rose 2% to $68.47 billion, below the $69.68 billion analysts expected, CNBC reported. The comparison was hurt by the Prime Day shift and by a stronger prior year, when online sales grew nearly 10%.
Profitability improved anyway. North America operating income rose to $8.7 billion from $4.8 billion. International operating income rose to $1.6 billion from $1.2 billion, the release says.
Advertising, Amazon's high-margin business, grew 11% to $19.64 billion on a reported basis. Amazon said ad revenue rose 12% excluding currency changes, and guided to high-teens growth in the fourth quarter.
The mix matters. AWS produced $17.8 billion of Amazon's $28.1 billion operating income. The cloud unit therefore funds much of the group's profit while retail margins improve slowly.
Holiday guidance implies continued retail growth. Amazon expects fourth-quarter operating income of $28.5 billion to $33.5 billion, against $25.0 billion a year earlier.
Amazon is also applying AI to advertising. It introduced Amazon Ads Agent, an AI-first platform for advertisers. It also launched Full-Funnel Campaigns, which let Amazon's AI plan, execute and optimise a single campaign for US advertisers.
Delivery speeds improved, with more than 1.5 billion items arriving same-day or overnight in the quarter. The fourth quarter is typically Amazon's largest by revenue because of holiday shopping.
What are the limitations of Amazon's AI numbers?
Amazon does not disclose AI revenue. The Bedrock figures are growth rates without absolute totals, and "Fortune 500 spending" is a company-selected slice of its customer base.
The shopping statistics are similarly broad. The 400 million customer figure covers 12 months. Amazon does not define what counts as an interaction or how it measures the 50% spending difference.
Free cash flow is a timing measure. A single quarter of heavy equipment purchases can swing it sharply in either direction. The $220 billion figure covers cash capital expenditure, not total capital investment.
Management's 40% AWS forecast is still a forecast. It depends on capacity arriving on schedule and on customers continuing to pay for AI workloads at current rates.
Jassy's view of shopping agents is not neutral. Amazon earns money when shoppers browse its own site. It has an obvious interest in arguing that outside agents are not ready. Amazon has not published data on purchases made through outside agents.
The quarter also shows how guidance can disappoint even when growth accelerates. Revenue, earnings and advertising all missed consensus, and the fourth-quarter revenue midpoint came in below expectations.
There is also no split between AI and non-AI cloud revenue. AWS's 39% growth includes ordinary compute and storage, so it cannot be read as a pure measure of AI demand.
The company's fourth-quarter guidance assumes no acquisitions, restructurings or legal settlements, which limits how much comfort investors can take from it.
And the record operating margin owes much to AWS, where operating income rose to $17.8 billion. Retail margins improved, but from a low base.
What should you watch next?
The next checkpoint is Amazon's fourth-quarter results, expected in early February. Investors will look at whether holiday revenue lands within the $240 billion to $247 billion range.
Capital spending guidance for 2027 is the bigger number. Jassy has promised to spend "meaningfully more" without giving a figure. The first concrete number will test how long shareholders tolerate negative free cash flow.
Trainium's external launch is promised for late 2027. It will show whether Amazon can sell silicon as a product, not only as cloud capacity.
The Muse dispute could escalate. Meta wants access to Amazon's catalogue, while Amazon wants agents to identify themselves and follow its rules. Watch whether other large retailers adopt similar blocks.
Advertising growth will show whether AI-mediated shopping changes behaviour. Amazon expects high-teens growth in the holiday quarter, after an 11% third quarter.
Chip supply is another variable. AWS announced plans to expand its portfolio of Nvidia chips in the quarter. The availability of those systems will shape how quickly new capacity comes online.
The agent question may be settled commercially rather than technically. If Meta and other platforms sign enough retailers, shoppers may not need to visit Amazon at all. That is precisely the outcome Jassy is playing down.
Finally, watch depreciation. The $94.8 billion increase in equipment purchases will flow through the income statement over the coming years. That is when the full cost of the AI build-out becomes visible.