AWS Grew 39%. Why Amazon Stock Fell on Earnings and Then Jumped 6%

Amazon Web Services grew 39% last quarter, its fastest pace in almost five years. Amazon’s operating margin hit 13.9%, the highest the company has ever reported. Then the stock fell 4.3% on report day and kept sliding after hours.

The reason was one number. Amazon spent $77.3 billion on capital projects in the September quarter, far above the roughly $58.7 billion Wall Street expected, and its free cash flow over the past year has gone negative.

A week later the mood flipped. AMZN closed at $266.03 on November 4, up 6.1% in a single session, as the whole market rallied after the midterm elections and a couple of analysts raised their targets. The October 29 report, the spending that scared people and what the stock costs now are all below.

Amazon’s September quarter by segment

Amazon sales and operating income by segment, Q3 2026

Net sales rose 12% to $201.9 billion, according to Amazon’s earnings release. That was a hair below the $202.3 billion analysts had expected.

The retail business is big and slow. North America sales grew 6% to $112.9 billion. International grew 5% to $43.1 billion. Neither number moved the stock.

AWS is the story. Revenue reached $46.0 billion, up from $33.0 billion a year earlier. Its operating income was $17.8 billion, up 55%, on a margin of almost 39%. AWS brings in less than a quarter of Amazon’s revenue and more than 63% of its operating profit.

Total operating income was $28.1 billion against $17.4 billion a year ago. Part of that jump is easy comparison. The year earlier quarter carried a $2.5 billion FTC settlement and severance costs that held profit down. Even so, North America’s operating income nearly doubled to $8.7 billion, which says the retail cost cutting is showing up.

Why earnings per share still fell

Net income came in at $20.7 billion, or $1.89 a share, down from $1.95. Analysts wanted about $1.96.

That drop has nothing to do with selling more or less stuff. A year ago Amazon booked $9.5 billion of pre tax gains on its stake in Anthropic, which inflated the 2025 figure. Without a gain like that this time, reported profit looks flat to down while the operating business grew fast.

It’s the same quirk that made Alphabet’s earnings look worse than its business last week. Big tech companies now hold large private AI stakes, and the marks on those stakes swing reported earnings around every quarter.

The cash problem

Amazon cash flow, capital spending and AWS backlog

Over the twelve months through September, Amazon generated $168.3 billion of operating cash flow. It spent $215.2 billion on property and equipment. Free cash flow for that period was negative $42.4 billion, the second quarter in a row it has been below zero.

For comparison, Alphabet spent $51.4 billion on capital projects in the same three months. Amazon spent about $26 billion more.

Amazon kept its 2026 capital spending forecast at around $220 billion. Chief executive Andy Jassy didn’t give a 2027 number, but said the company expects to spend “meaningfully more.” Most of it is data centers, power and chips for AWS.

The bull case is that demand is already signed. AWS’s backlog, the value of contracts customers have committed to but not yet used, rose to $578 billion from $496 billion three months earlier. Jassy also said AWS can grow “north of 40%” in both 2027 and 2028, and that Amazon plans to sell its Trainium chips outside AWS starting around late 2027.

“There has never been a trillion dollar revenue business, and we may have two of them in the next 5-10 years,” Jassy said in the release. He means retail and AWS.

The bear case is simpler. Spending more than you earn for two quarters running is fine if the backlog turns into revenue on schedule. If AI demand cools, Amazon is left holding a lot of very expensive buildings.

What Amazon expects for the holiday quarter

For October through December, Amazon guided to net sales of $240 billion to $247 billion, growth of 12% to 16%. Operating income is expected between $28.5 billion and $33.5 billion.

The low end of that range is barely above the September quarter, even though the holiday quarter is always the biggest of the year for retail. Investors will read the final number against that $28.5 billion floor.

Is Amazon stock cheap at $266?

At the November 4 close, Amazon was worth about $2.88 trillion. The 52 week range runs from $196.00 to $287.20, so the stock is about 7% below its high.

The valuation numbers look odd at first. The trailing price to earnings ratio is about 21.5, while the forward ratio is higher, close to 27. Usually it’s the other way around for a growing company. The trailing figure is flattered by the Anthropic gains of the past year. Strip those out and Amazon isn’t as cheap as 21 times earnings makes it look.

For context, the forward ratio on Alphabet is about 20, on Microsoft about 25 and on Apple about 35. Amazon sits toward the high end for a company whose free cash flow is negative right now.

Amazon doesn’t pay a dividend.

What analysts expect from AMZN

The average 12 month price target from 59 analysts tracked by StockAnalysis is $326.74, about 23% above the November 4 close. The consensus rating is a strong buy.

Mizuho raised its target to $335 this week. Before the report, UBS had moved to $348 and Morgan Stanley to $350. The low end of the range sits around $230 and the high near $405.

The gap between the bulls and the bears is mostly a bet on one question: will the 2027 spending number look like a plan or a problem?

What could move Amazon from here

The holiday quarter comes first. The report should land in late January or early February 2027, and it’s when Amazon will likely put a figure on 2027 capital spending.

AWS growth needs to stay near 40%. Google Cloud just grew more than 100%, and CNBC reported that Microsoft’s Azure is now about 72% the size of AWS, up from 58% two years ago. Amazon is still the biggest cloud provider, but the lead is shrinking.

The retail margin matters more than it used to. North America made 7.7% on sales this quarter. If that keeps rising, retail can help pay for the data centers.

And the market itself. The November 4 jump had little to do with Amazon’s own news. The Dow rose about 1,500 points that day. A stock that rises 6% on a market wave can give it back the same way.

Questions people ask about Amazon stock

Why did Amazon stock fall after strong AWS results?

Because capital spending came in far above expectations and free cash flow is negative over the past year. Investors priced in the cost of the AI build out more than the growth it’s producing.

Does Amazon pay a dividend?

No. Amazon has never paid a regular dividend. It puts its cash back into the business, which right now mostly means AWS data centers.

How big is AWS compared with the rest of Amazon?

About 23% of revenue and more than 63% of operating income in the September quarter. Retail sells far more, but AWS earns most of the profit.

Should I buy Amazon or an index fund?

That depends on how much one company’s swings you can live with. Amazon is one of the largest holdings in S&P 500 and Nasdaq 100 funds, so index investors already own a good chunk of it. Our guide on how much money you need to start investing covers both routes.