Amazon Q3 sales miss as cloud soars

Amazon reported a fourth-quarter sales outlook that falls short of the holiday rush expectations set by investors following a fiscal third quarter that missed analyst forecasts.

The Seattle company posted net sales of $201.94 billion for the three months ended Sept. 30, a 12% increase from $180.17 billion in the same period last year. Net income came in at $20.69 billion, or $1.89 per share, down from $21.19 billion, or $1.95 per share, in the year-ago period. FactSet analysts had projected earnings of $1.97 per share on revenue of $202.2 billion.

Cloud computing unit Amazon Web Services drove the strongest performance. Sales in the division rose 39.3% to $46 billion, marking the fastest growth rate in nearly five years. The growth rate accelerated from 37% in the previous quarter. CEO Andy Jassy stated on an earnings call that he expects AWS sales to grow 40% annually for the next two years. He projected the unit will become a business worth more than $1 trillion within five to 10 years.

Despite the cloud strength, shares dropped 7% in after-market trading. Investors focused on the company's core operations and its cash burn related to artificial intelligence investments. Amazon reported a free cash flow loss of $42.4 billion for the trailing 12 months.

Jassy confirmed the company will spend $220 billion in capital this year, primarily to build AI data centers. This figure includes outlays for robots, semiconductors, and satellites. The spending plan is up from $200 billion announced in February and significantly higher than the $128 billion invested in the previous year. Jassy noted the company is installing an AI chip roughly every 14 seconds, describing the customer demand as rapid.

The earnings report follows a similar warning from Alphabet, which posted weaker summer growth and cash outflows exceeding $51 billion for property and equipment. Alphabet's stock fell sharply after its release. Amazon's results also arrive as major technology firms face political and local backlash over data center expansion.

Amazon announced this month it will invest over $1 billion in the next five years in communities hosting its data centers. The funding supports education, job training, and water and energy preservation projects. The company also continues to speed up delivery times using robotics and AI, a strategy that helped it surpass Walmart as the largest U.S. company by revenue in February.

For the current fourth quarter, Amazon projects net sales between $240 billion and $247 billion. This represents a 12% to 16% increase from the year-ago period. Analysts had expected revenue of $244.16 billion.