Amazon misses quarterly profit targets as cloud unit grows

Amazon reported lower profits than Wall Street predicted for its third quarter, prompting a decline in its stock price despite strong performance in its cloud division.

The company generated net income of $20.69 billion, or $1.89 per share, for the three months ended Sept. 30. Analysts had forecast $1.97 per share on sales of $202.2 billion. Total net sales rose 12% to $201.94 billion. Amazon attributed the lower-than-expected revenue partly to the timing of its Prime Day sale, which shifted to the second quarter this year. The company stated that sales growth would have been 4% higher had the event occurred in the same period as the prior year.

Amazon Web Services remained a bright spot, with sales rising 39.3% to $46 billion. This marks the fastest growth rate for the unit in nearly five years. CEO Andy Jassy told investors that he expects AWS sales to increase 40% annually for the next two years. He stated that the unit will become a business worth more than $1 trillion within five to 10 years. Jassy noted that the company installs a new AI chip roughly every 14 seconds.

Investors grew concerned about the heavy capital spending required to support these AI capabilities. Amazon plans to spend $220 billion on capital projects this year, up from an earlier estimate of $200 billion and significantly higher than the $128 billion spent in the previous year. This spending covers robots, semiconductors, and satellites. As a result, the company reported a free cash flow loss of $42.4 billion over the trailing 12 months.

Amazon shares fell 7% in after-market trading following the release. The drop follows a similar reaction to Alphabet's earnings, which showed higher cash burn and weaker growth than expected. Amazon faces pressure to prove that its large AI investments are generating returns. The company also announced it will invest more than $1 billion over the next five years into local communities where it operates data centers.

Amazon guided for fourth-quarter net sales between $240 billion and $247 billion. This range represents a 12% to 16% increase from the year-ago period. Analysts had expected sales of $244.16 billion for that quarter.