Amazon (AMZN) just had its best cloud quarter in years. Amazon Web Services grew 39% to $46 billion in the three months through September. The stock fell anyway. Revenue and profit both came in under what analysts expected. The bar for the AI giants is now set at perfect.
Total revenue rose 12% to $201.9 billion. Net income was $20.7 billion. Both missed Wall Street's numbers, though revenue landed inside Amazon's own forecast of $197 billion to $202 billion. The online store business grew just 2% to $68.5 billion. Ad growth slowed to 12%. Groceries and everyday basics made up half the items sold on the site. Mark Mahaney of Evercore ISI told the Journal that expectations "probably got a little unrealistic."
Here's the number that matters. Free cash flow over the past 12 months was an outflow of $42.4 billion. Amazon spent $75.9 billion on capital projects in the quarter alone. It plans about $220 billion this year, mostly for AI data centers. In July, chief executive Andy Jassy added $20 billion to a $200 billion plan. He blamed part of the increase on the higher cost of memory. The stock rose more than 9% after that call. This time was different. Amazon shares had already fallen 4.25% in Thursday's regular session, before the report, by our arithmetic from the Journal's table. After the report they fell another 5.30% in late trading, to $230.87. The story's text says more than 6%. We went with the table, which runs to 6 p.m.
Jassy's bet
Jassy isn't backing off. He said AWS can grow north of 40% in each of 2027 and 2028 and become a trillion-dollar-revenue business within five to 10 years. Isabella Simonetti reported the quarter for the Journal. The spending has company. Meta (META) said last week it would create a new class of nonvoting stock to fund AI. Data centers have become an election issue, and Amazon made a public appeal this month to shore up support for its own.
Our read
This is Investments/Risk, IN04. The spending is the story. A business can grow 39% in its best unit and still burn $42.4 billion of free cash in a year. For years the AI build-out lived in press releases. Now it lives on the cash flow statement, and anyone can read it. Amazon is held at weight in 19 of our model books. Nothing was added, nothing trimmed. We don't think a miss against unrealistic expectations makes it a bad company. We do think a company spending $220 billion a year has less room for error.
Here's your check this week. Many people own Amazon without ever choosing it, through a target-date fund or an S&P 500 index fund. Pull up your main 401(k) fund's fact sheet and find its top ten holdings. Count how many are Amazon, Alphabet and Microsoft, and add up their weights. All three are spending on AI at a similar scale. That's one bet, made three times. Decide if the size of it fits your timeline. You don't buy the umbrella when it's already raining. You buy it on the sunny day before.