Amazon Q3: AWS Jumps 39% to Its Fastest Pace in Nearly Five Years, Record Operating Margin as Free Cash Flow Swings Negative

Amazon reported third-quarter results after the market closed on October 29, for the quarter ended September 30: net sales of $201.9 billion, up 12% year over year, AWS cloud sales of $46.0 billion, up 39.3% — the fastest pace in nearly five years, a roughly $184 billion annualized revenue run rate — and operating income of $28.1 billion at a 13.9% operating margin, the highest in company history. The other side of the ledger drew equal attention: trailing-12-month free cash flow swung to a $42.4 billion outflow, versus a $14.8 billion inflow a year earlier, and shares fell about 6% in early after-hours trading.

Cloud is the profit engine; North America and International both improved

By segment: AWS operating income was $17.8 billion (versus $11.4 billion a year earlier), about 63% of company operating profit; North America operating income was $8.7 billion (versus $4.8 billion) and International $1.6 billion (versus $1.2 billion). North America sales rose 6% to $112.9 billion and International sales rose 5% to $43.1 billion (8% excluding foreign exchange). The company noted Prime Day fell mostly in Q2 this year versus entirely in Q3 last year; excluding that shift, third-quarter growth would have been about 400 basis points higher.

The net income dip is a base effect; the cash flow swing is the real bill

Net income fell to $20.7 billion, or $1.89 per diluted share, from $21.2 billion, or $1.95, a year earlier; the company attributed the decline primarily to $9.5 billion of pre-tax gains from its Anthropic investment in the year-ago quarter. What alarmed the market is cash flow: net purchases of property and equipment rose $94.8 billion year over year, primarily for AI, flipping free cash flow negative; the company kept its plan for about $220 billion in cash capital expenditures this year, and long-term debt has nearly tripled since December to about $173 billion.

Outlook: fourth-quarter guidance and cloud growth beyond 2026

Fourth-quarter guidance: net sales of $240.0–247.0 billion, up 12–16%, and operating income of $28.5–33.5 billion (versus $25.0 billion a year earlier). CEO Andy Jassy said AWS investment in functionality and infrastructure is working, with projected revenue growth of over 40% in both 2027 and 2028. The company also disclosed that Fortune 500 spending on its Bedrock inference service rose nearly 7x year over year, total Bedrock token volume grew nearly 17x, and it signed new AWS agreements with Meta, NVIDIA, OpenAI and Salesforce, among others.