<\/p>\n
Amazon.com shares dropped after the company reported greater capital spending than anticipated and the slowest growth in the core e-commerce business in three years.<\/p>\n
Amazon said it spent more than $77 billion on property and equipment in the third quarter, far more than analysts\u2019 estimates, while pursuing its effort to build data centres and fulfil demand for artificial intelligence services. Third-quarter sales were lower than anticipated, rising 12% to $201.9 billion.<\/p>\n
Revenue at the cloud unit, Amazon Web Services, accelerated for the sixth straight quarter. Online sales gained just 2% to $68.5 billion, the lowest increase since early 2023, when Amazon was still working through the post-pandemic slump in online retail. Advertising sales, a business closely tied to the e-commerce franchise, rose 11%, the slowest rate since Amazon began breaking out such results in 2020.<\/p>\n
The results come during a jittery time in the market. Solid increases in cloud sales \u2014 long a growth engine for Amazon and its nearest rivals in selling on-demand computing infrastructure \u2014 haven\u2019t been enough to outweigh concern about the torrid pace of AI expenses.<\/p>\n
Even at Amazon, the world\u2019s largest company by sales and a relatively diversified conglomerate, spending led to a free cash outflow of $42.4 billion over the trailing 12 months, the company said Thursday in a statement.<\/p>\n
John Tomlinson, an analyst with research firm M Science, said some of the relative weakness in retail is likely the result of Amazon\u2019s decision to move its Prime Day sales to June this year, from July. Still,\u201cthere\u2019s a little bit of a crack in the armour here,\u201d he said. \u201cThere\u2019s a lot of focus on how much companies are spending on AI.\u201d<\/p>\n
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The AWS business has picked up this year, fuelled by sales to AI companies like OpenAI and Anthropic, which both rely in part on Amazon servers to power their models. Amazon has also added to its fleet of data centres, boosting its ability to provide computing power to businesses.<\/p>\n
Chief Executive Officer Andy Jassy said the company\u2019s cloud business was also showing strength beyond AI. The core AWS computing power and storage rental business grew at \u201ctheir fastest rates in several years,\u201d he said on a conference call with analysts after the results were released.<\/p>\n
The company said in July that it would likely spend $220 billion in capital expenditures in 2026, up from a prior forecast as a crunch in memory chips curbed supply. Amazon stuck to that forecast on Thursday, though Jassy said the outlays would rise \u201cmeaningfully\u201d in 2027.<\/p>\n
What Bloomberg Intelligence Says<\/p>\n
Amazon.com\u2019s 39% AWS growth fell short of investors\u2019 heightened expectations after stronger Cloud results from Microsoft and Google, but its more than 40% growth outlook for 2027-28 signals demand remains robust. AWS margins held near 39% despite elevated capital expenditures, and we expect them to stay resilient over the next 12 months, driven by higher sales gains and better cost controls. Prime Day\u2019s shift to 2Q depressed 3Q retail and ad growth while aiding margins, obscuring healthier underlying trends, with grocery, faster delivery and Alexa for Shopping supporting continued share gains. Advertising growth slowed, largely reflecting Prime Day timing.<\/p>\n
\u2013 Poonam Goyal and Anurag Rana, analysts<\/p>\n
On the call, Jassy made the case that the company\u2019s main businesses were healthy. Sales of foodstuffs, long a weak spot for Amazon, continue to grow faster than e-commerce overall, with groceries and household supplies accounting for almost $250 billion in sales in the year through September. And Jassy said AWS could grow more than 40% year-over-year in each of the next two years.<\/p>\n
None of the commentary reversed the declines in Amazon\u2019s shares, which fell about 7% in extended trading after closing at $243.79 in New York. The stock had gained 5.6% this year through Thursday\u2019s close.<\/p>\n
\u201cAWS\u2019s accelerating growth fell short of overblown expectations and the higher competitive bar set by Microsoft and Google,\u201d said Sky Canaves, an analyst with Emarketer. \u201cThe cloud unit\u2019s improving operating margin was one welcome signal, but it may not be sufficient to alleviate concerns about the sharp spike in capex spending and corresponding free-fall of its free cash flow.\u201d<\/p>\n
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Investors\u2019 disappointment with Amazon\u2019s results is similar to the reaction to rival Alphabet Inc.\u2019s report on Wednesday. Alphabet reported search and advertising sales that reinforced investor concerns about AI\u2019s threat to its core business, sending its shares down 13% at the close Thursday \u2014 the worst day ever for the stock. Also Wednesday, Microsoft Corp reported a 48% gain in cloud revenue while keeping its capital expenditures in check, soothing investors concerned about lavish spending on AI. Microsoft shares fell less than 1% on Thursday.<\/p>\n
Canaves said the Prime Day schedule move \u201cdoesn\u2019t fully explain the weakness in online stores and advertising growth, suggesting that consumer pressure may be becoming more visible as shoppers pull back where they can, and this has a knock-on effect on advertisers\u2019 willingness to spend.\u201d<\/p>\n
Amazon said sales in the holiday period will be $240 billion to $247 billion. Analysts were looking for $244.5 billion.<\/p>\n
Third-quarter operating income increased to $17.8 billion, compared with $11.4 billion in the period a year ago. Amazon projected profit in the holiday quarter of $28.5 billion to $33.5 billion. Analysts, on average, estimated $33 billion.<\/p>\n
\u00a9 2026 Bloomberg<\/p>\n
#Amazon #shares #drop #spending #soars #online #business #slows<\/p>\n","protected":false},"excerpt":{"rendered":"
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