Amazon's Cloud Reaccelerates to 39% Growth; Shares Slide on a Record Spending Bill

Amazon shares fell in Friday afternoon trading, down about 2.4% to $238 as of early afternoon, even after the company reported its fastest cloud growth in years. The cloud business delivered. Investors read past that headline and fixed on the cost of building it.

Amazon Web Services, the unit that supplies most of the company’s profit, booked $46.0 billion in sales for the third quarter, up 39% from a year earlier. Growth is quickening again. That is a step up from 37% the prior quarter and the division’s strongest pace in several years. AWS operating income reached $17.8 billion, against $11.4 billion a year earlier. The company put the unit’s annualized revenue run rate at $184 billion. It pointed to demand for AI computing as the driver. The unit generated under a quarter of Amazon’s revenue last quarter and roughly two-thirds of its operating profit.

Companywide, net sales rose 12% to $201.9 billion. Operating income climbed to $28.1 billion from $17.4 billion, which the company called a record 13.9% margin. Net income slipped to $20.7 billion, or $1.89 per diluted share, from $1.95 a year earlier. Elsewhere, growth was modest. North America sales rose 6% to $112.9 billion, international 5% to $43.1 billion, and advertising 11% to $19.6 billion. The retail picture was better on profit than on sales: North America operating income nearly doubled to $8.7 billion, and the international unit earned $1.6 billion.

The figure that drew scrutiny sat on the cash flow statement. It was the capital budget. Purchases of property and equipment, most of it for AI and data center capacity, reached $77.3 billion in the quarter and $215.2 billion over the past twelve months, nearly double the $120.1 billion a year earlier. That pace puts Amazon on course for its largest annual capital spend ever, and it has turned the company cash-flow negative. Free cash flow swung to an outflow of $42.4 billion for the trailing year, reversing a $14.8 billion inflow a year earlier. Per-share earnings came in under the $2 consensus that analysts had forecast.

The report landed in a jittery market. The Nasdaq Composite dropped 3.79% on Thursday and the S&P 500 lost 2.46%, as investors weighed how much the largest technology companies are spending to chase AI. Wall Street’s volatility gauge, the VIX, jumped as the selloff spread. Amazon was part of that slide. It fell 4.2% on Thursday on more than double its recent daily volume, and across that session and Friday’s the shares have shed more than 6%. The stock now sits about 17% below its 52-week high of $287.20. It has lost 4% over the past month and gained 5% over three months.

For the quarter ahead, Amazon guided to net sales of $240 billion to $247 billion, a range that implies 12% to 16% growth and covers the holiday shopping season. Two questions followed the company out of the report: whether cloud demand keeps pace with the buildout, and when the capital spending crests. Amazon reports again in early February.

This is a general-market summary for information only — not investment advice, and not a recommendation regarding any security.