Amazon reports Q3 revenue up 12% YoY to $201.9B, net income down 2% to $20.7B, and operating income up 61% to $28.1B; AMZN drops 8%+ after hours

Amazon's stock fell as its Q4 outlook failed to impress investors despite strong AWS growth.

Amazon reported third-quarter revenue of $201.9 billion, a 12% increase year-over-year, though this fell slightly short of analyst expectations. Net income was $20.7 billion, down 2%, while operating income surged 61% to $28.1 billion. A significant driver was Amazon Web Services (AWS), which saw revenue grow 39% to $46 billion, its fastest pace in nearly five years. However, the company's fourth-quarter revenue forecast of $240 billion to $247 billion, and operating income projection, fell below consensus estimates. Advertising revenue also missed expectations, coming in at $19.6 billion. Amazon's capital expenditures were substantial, reaching $77.3 billion in the third quarter, contributing to negative free cash flow of $42.4 billion over the trailing 12 months as the company invests heavily in AI infrastructure. Despite these figures, CEO Andy Jassy expressed optimism about future growth in cloud computing and AI, predicting AWS could grow over 40% in 2027 and 2028.

The significant increase in capital expenditure, particularly for AI infrastructure, suggests a strategic pivot towards scaling future AI capabilities, which is now a major determinant of Amazon's financial performance. This heavy investment, while promising long-term growth, is creating short-term pressure on free cash flow, a metric investors are closely scrutinizing.

The slight miss on overall revenue and the weaker-than-expected Q4 guidance indicate potential headwinds in core e-commerce and advertising segments, even as AWS continues its impressive expansion. Investors will be watching how effectively Amazon balances its aggressive AI infrastructure build-out with profitability and operational efficiency across its diverse business units.