Amazon Q3 Misses on Retail and Outlook, Sending Stock Down 9%

Key points

• Amazon Q3 EPS was $1.89 vs. $1.97 expected; revenue was $201.9B vs. $202.25B expected.
• AWS revenue reached $45.9B, beating the $45.68B estimate, with 39% year-over-year growth.
• Online store sales were $68.47B, missing the $69.6B estimate, partly due to Prime Day shifting to Q2.
• Q4 revenue guidance midpoint was $243.5B, below the $244.5B analyst consensus.
• Q4 operating income guidance midpoint was $31B, below the $32.99B analyst estimate.
• CEO Andy Jassy stated Fortune 500 companies spent 7x more on Bedrock inferencing year-over-year.

Background

Recent tech earnings have shown mixed results, with Alphabet missing and triggering an AI sell-off while Microsoft beat expectations. Amazon's results follow a period of heightened scrutiny on AI capital expenditure returns and cash flow, as seen in Tesla's positive free cash flow turnaround and Netflix's guidance cuts. The broader market has been sensitive to AI-related capex and revenue growth sustainability.

How outlets are covering it

Yahoo Finance emphasized the sharp stock decline and the specific misses in EPS, revenue, and Q4 guidance, highlighting the impact of Prime Day timing on retail growth. Seeking Alpha focused on the valuation, noting that despite strong AWS growth, Amazon's forward multiple of ~24x is high compared to peers, and heavy AI investments may pressure free cash flow and increase net debt. Analysts cited by Yahoo Finance, such as Dan Ives and UBS's Stephen Ju, highlighted AWS's strong growth and potential margin expansion, while BofA maintained a Buy rating, focusing on AI opportunity and ROI on capex.

Why it matters

Amazon's miss signals potential slowing momentum in its core retail business and raises questions about the profitability and timing of returns on massive AI and cloud infrastructure investments. The stock's significant drop reflects investor concerns about high valuations and the sustainability of AWS growth, which is central to Amazon's market cap and future earnings potential.

What to watch

Investors will watch Amazon's fourth-quarter performance, particularly AWS growth rates and operating margins, as well as the progress of new businesses like grocery, pharmacy, Leo, and Zoox. The company's ability to maintain AWS growth above 40% in 2027 and 2028, as projected by CEO Andy Jassy, will be critical for justifying its current valuation.