Amazon's stock drops - even in the face of a bold new cloud forecast

By Christine Ji

Modest AWS results and weak advertising growth leave Wall Street disappointed by Amazon's third-quarter earnings report

Amazon forecasts that its cloud business will grow 40% annually in 2027 and 2028.

Similar to how Alphabet's earnings played out on Wednesday, Amazon.com's cloud commentary wasn't enough to make up for lackluster performance in other business areas.

Shares of Amazon (AMZN) fell nearly 7% in after-hours trading Thursday as overall revenue and earnings fell short of Wall Street's expectations. Total revenue grew 12% from a year before to $201.9 billion, and earnings per share came out to $1.89. Analysts polled by FactSet had been expecting $202.2 billion and $1.97, respectively.

Jefferies analyst Brent Thill wrote in a Thursday note that Amazon posted "mostly weak results across Q3." Amazon Web Services grew 39.3% and achieved a $184 billion annualized revenue run rate. The results beat Wall Street consensus of 38% growth but still fell short of clearing the 40%-plus benchmark that institutional investors were expecting, Thill said.

Amazon forecasted overall revenue between $240 billion and $247 billion for the fourth quarter, bracketing the $244.2 billion FactSet consensus.

More notable was the rosy long-term outlook that management offered for AWS in particular, with CEO Andy Jassy saying that he anticipates AWS will grow revenue by 40% in both 2027 and 2028, positioning it to become a $1 trillion business in five to 10 years.

While the overall fourth-quarter projections were "light," the AWS trajectory for the next two years is "a bright spot," Jefferies trading-desk analyst Jeffrey Favuzza wrote in a note following the earnings report. A multi-year outlook is practically unheard of for cloud giants, much less Amazon, he added.

AWS is installing an AI accelerator, or AI chip, "about every 14 seconds," Jassy said on the earnings call. The cloud platform's backlog has risen to $578 billion as demand for processing power continues to rise. The company's custom-chip business is growing by triple-digit percentages year over year, and revenue commitments for Graviton and Trainium chips have increased over 20 times over that time period, Jassy said. Amazon is also planning to sell its Trainium chips to customers outside of AWS beginning in late 2027.

Favuzza believes that there could be upside to the 40% growth rate, especially if the company incorporates the impact from Trainium sales.

While AWS was the main focus of the earnings report, other parts of Amazon's business also drew attention. The advertising business slowed to 12% growth this quarter, falling short of the 18% forecasted by Wall Street. The slowdown was in large part due to Prime Day occurring outside of the third quarter this year, moving its impact to the second quarter instead, the company said.

Amazon expects to achieve "high-teens" growth in the fourth quarter.

The company also pushed back against the narrative that external AI agents could be negatively impacting the company's ad business. The company has its own first-party AI agent, Alexa for Shopping, which was used by over 400 million customers in the past 12 months. However, Amazon has blocked Meta's (META) Muse agent from accessing its platform.

"Few customers are doing much shopping this way yet, as the experience is still not great nor more convenient than coming to a retailer directly to research or one-click order there," Jassy said of third-party AI agents.

Still, analysts aren't convinced that the ad business is safe from agentic upheaval. "How much horizontal agents ultimately disrupt where consumers discover products and where advertising can influence those decisions remains an open question for all of Big Tech," Forrester vice president and research director Emily Collins said in a Thursday note.

-Christine Ji

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10-29-26 2015ET