Amazon shares fall after Q3 miss as AI costs drain cash

Amazon Amazon.com, Inc. ↗ 2.20% shares fell on Friday, October 30, after the company's third-quarter earnings and revenue came in below Wall Street estimates and its free cash flow for the trailing 12 months turned deeply negative because of spending on artificial intelligence. The stock dropped about 7% in after-hours trading on Thursday. It fell nearly as much in premarket trading before recovering some of the loss after the opening bell. Strong growth at the company's cloud unit was not enough to offset investor worries about how much cash its AI build-out is using up.cnbc.com+2

A narrow miss

Amazon earned $20.69 billion, or $1.89 per share, on revenue of $201.94 billion, which was up 12% from a year earlier. Analysts surveyed by FactSet ↗ 4.30% had expected $1.97 per share on $202.2 billion in sales. Profit was lower than a year earlier mainly because the 2025 quarter included a $9.5 billion pre-tax gain on Amazon's stake in Anthropic. Advertising revenue rose 11% to $19.64 billion, short of the $20.82 billion analysts expected, and online store sales grew only 2%. Amazon said moving Prime Day into the second quarter in most large countries reduced third-quarter sales growth by about 4 percentage points. It forecast fourth-quarter sales of $240 billion to $247 billion. The midpoint of that range was below the $244.5 billion consensus.cnbc.com+1

Amazon Web Services was the strongest part of the report. Its revenue rose 39.3% to $46 billion, the fastest growth in nearly five years. CEO Andy Jassy said he expects AWS growth of "over 40%" in 2027 and 2028, and he predicted the unit will become a $1 trillion revenue business within five to 10 years. "Customers are gobbling it up," Jassy said of the company's AI capacity.apnews.com+1

Cash flow in focus

Free cash flow for the trailing 12 months was negative $42.4 billion, compared with negative $7.6 billion a quarter earlier. Capital spending in the third quarter reached $77.3 billion, well above the $58.7 billion analysts had estimated. Amazon kept its 2026 capital spending plan at $220 billion, and Jassy said the company will "spend meaningfully more in 2027". Long-term debt rose to $173.1 billion from $65.6 billion at the end of 2025.tradingkey.com+1

Morningstar ↗ 5.54% cut its fair value estimate for Amazon to $280 from $300. It said "the reality of exactly how much cash the artificial intelligence buildout is going to cost is becoming more noticeable," but it expects free cash flow to recover in 2028 and beyond.morningstar.com

A rough week for tech

Amazon's results came during a broad tech sell-off. The Nasdaq Composite fell more than 2.5% on Friday, and Intel ↘ 8.80% dropped 29% after giving weak guidance. Alphabet ↘ 0.06% had its worst day on record on Thursday. Earlier in the week, Microsoft ↘ 2.83% lowered its capital spending forecast for the year to $170 billion. "I don't think this is a moment of reckoning," said Matt Orton of Raymond James ↗ 3.23%. He added that investors should "take a long thought" about how crowded positioning in the sector remains.cnbc.com+1