Amazon just posted the best cloud quarter in its recent history, and investors hated it. AWS grew 39% to $46 billion in the third quarter — its fastest pace in nearly five years — with operating income up 55% to $17.8 billion. CEO Andy Jassy said he expects the unit to top 40% growth in both 2027 and 2028. Shares fell anyway, down more than 11% after hours, according to GeekWire's Todd Bishop.
The problem wasn't the cloud — it was everything around it. Earnings came in at $1.89 a share against a $1.97 consensus, net sales of $201.9 billion just missed, and the AI buildout is now being financed on Amazon's credit card. Long-term debt has nearly tripled since December to about $173 billion, quarterly interest expense more than tripled to $1.7 billion, and trailing twelve-month free cash flow swung to a $42.4 billion outflow from a $14.8 billion inflow a year earlier, driven by a $94.8 billion jump in property and equipment purchases. Capital spending hit $77.3 billion for the quarter — far above the $57.5 billion Wall Street expected — and Jassy told analysts Amazon will spend "meaningfully more" than this year's $220 billion in 2027.
The contrast with Tuesday's cloud earnings couldn't be starker. Microsoft's 48% Azure jump got rewarded because the AI spending story came with a receipt. Amazon's story is: trust us, the backlog will convert. And to be fair, the backlog is enormous — AWS has $578 billion in contracted future revenue, more than double a year earlier, and the unit is within about $500 million of becoming Amazon's second-largest source of sales, nearly overtaking its third-party seller business.
Then Jassy went further. "There has never been a trillion dollar revenue business, and we may have two of them in the next 5-10 years," he said — naming AWS and the stores business, which did nearly $500 billion in retail sales over the past twelve months.
That's the tension defining the whole AI trade right now. The demand signal has never been stronger: AgentCore has tens of thousands of customers, twice as many AI agents deployed as last quarter, and Alexa for Shopping reaches more than 400 million customers with interactions up 570% year over year. But growth is being bought with a negative-$42-billion cash flow print and a borrowing spree, and the market is now pricing the bill, not just the backlog. Whether that bet pays depends on whether "meaningfully more" spending in 2027 converts into something closer to Microsoft's receipt — or something closer to Amazon's interest expense.
— via GeekWire