Cloud computing and online retail behemoth Amazon (NASDAQ: AMZN) met Wall Street’s revenue expectations in Q3 2026, with sales up 12.1% year on year to $201.9 billion. The company expects next quarter’s revenue to be around $243.5 billion, close to analysts’ estimates. Its non-GAAP profit of $1.89 per share was 3.4% below analysts’ consensus estimates.

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StockStory’s take

Amazon’s third quarter results were shaped by rapid expansion in its cloud business and ongoing momentum in online retail, but a lower-than-expected profit weighed on investor sentiment. Management emphasized that Amazon Web Services (AWS) posted its fastest growth in nearly five years, powered by demand for AI-related infrastructure and a broad set of new customer use cases. CEO Andy Jassy highlighted that AWS “grew 39.3% year-over-year, accelerating for the sixth straight quarter,” and continued investment in custom chips and fulfillment efficiencies helped offset higher transportation costs. However, the company’s GAAP earnings per share came in below Wall Street forecasts, prompting a significant negative market reaction.

Looking forward, Amazon’s guidance is anchored by expectations of continued strength in both AWS and its core retail operations, underpinned by major investments in AI, robotics, and fulfillment. Management pointed to a sizeable AWS backlog and growing customer adoption of new AI services, with Jassy stating, “We believe that AWS can grow north of 40% in each of 2027 and in 2028 and be a trillion-dollar revenue business in the next five to 10 years.” CFO Brian Olsavsky noted that ongoing capital expenditures, particularly in AI and cloud, are expected to drive long-term revenue and free cash flow, though near-term profitability may fluctuate due to higher operating costs and the timing of new product launches.

Key insights from management’s remarks

Amazon’s management attributed Q3 performance to accelerating cloud growth, strong retail execution, and disciplined investment in AI and fulfillment infrastructure.

• AWS growth acceleration: AWS revenue growth accelerated for the sixth consecutive quarter, with management crediting strong demand for both core cloud and AI services. Jassy noted that AWS backlog grew in the triple digits year-over-year, and new AI products like Bedrock and custom chips such as Trainium and Graviton are driving customer adoption and cost efficiencies.
• AI and custom silicon momentum: The company’s investments in custom silicon, particularly Trainium and Graviton chips, are yielding performance and price advantages for AWS customers. Management said customers using custom silicon saved more than $2 billion in Q3 alone, and revenue commitments for these chips increased over 20 times year-over-year.
• Retail and fulfillment leverage: Amazon’s core retail segments benefited from fulfillment improvements and increased delivery speeds, with management citing a fourth consecutive year of lowering cost to serve per unit. The expansion of same-day and ultrafast delivery, along with greater use of robotics in fulfillment centers, was highlighted as key to maintaining market share gains.
• Grocery and pharmacy expansion: Amazon saw rapid growth in fresh groceries, Everyday Essentials, and pharmacy services. Olsavsky stated that Prime members ordering groceries with same-day delivery have tripled year-over-year, and pharmacy users increased over 60% year-over-year, supporting cross-category spend and customer retention.
• Advertising platform transition: The advertising segment experienced slower growth due to timing shifts of Prime Day and changes in search engine marketing. However, management expects growth to return to the high teens, supported by the rollout of the Amazon Ads Agent, which integrates AI-driven campaign management and optimization tools.

Drivers of future performance

Management’s outlook centers on cloud growth, AI adoption, and continued operational efficiency as main levers for revenue and margin trends.

• Sustained AWS demand: The company expects AWS revenue growth to outpace the broader market, fueled by increasing enterprise adoption of AI, a robust pipeline for core cloud migrations, and the introduction of new AI services and chips. Management believes that these drivers could support 40%+ annual growth in AWS for the next several years.
• Margin dynamics and investment: Operating margins are projected to fluctuate due to mix shifts from higher AI workloads, component cost pressures, and heavy capital expenditures in cloud infrastructure and robotics. Olsavsky noted, “The outsized growth of AI puts margin pressure on the business as a whole because the margins are lower there.”
• Retail innovation and cross-sell: Amazon aims to deepen customer engagement through expanded grocery, pharmacy, and same-day delivery offerings. Management sees significant potential in converting grocery and pharmacy shoppers into multi-category customers, which could drive higher overall spend and improve customer lifetime value.

Catalysts in upcoming quarters

Going forward, the StockStory team will be monitoring (1) the pace of AWS customer adoption for new AI offerings and infrastructure expansions, (2) the effectiveness of robotics and automation in further reducing fulfillment costs and improving delivery speeds, and (3) the ramp-up of retail cross-selling, particularly in grocery and pharmacy. Progress in these areas, along with the integration and monetization of new advertising and AI services, will be crucial signposts for Amazon’s execution.

Amazon currently trades at $239.15, down from $244.45 just before the earnings. In the wake of this quarter, is it a buy or sell? See for yourself in our full research report (it’s free).

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