Shares of Amazon (AMZN) fell more than 7% in premarket trading on Friday after the e-commerce and cloud giant reported third-quarter results that missed Wall Street forecasts, sharpening investor concern over the escalating cost of its artificial intelligence expansion. The decline followed a 4.25% drop on Thursday and weighed on the broader technology sector, with Nasdaq futures down more than 2% as investors reviewed spending plans across major companies.

Q3 Earnings Miss Estimates

Amazon posted quarterly revenue of $201.94 billion, up 12% from a year earlier but short of Wall Street's $202.31 billion estimate — a gap of roughly $370 million. Earnings per share came in at $1.89, 8 cents below the $1.97 analysts had expected. Operating income climbed to $28.1 billion from $17.4 billion in the year-ago quarter. The shortfall was slim by conventional measures, a sign that the spending trajectory, rather than the quarter itself, was front of mind for investors.

The print followed a pre-earnings slide in the shares on Thursday. Looking ahead, Amazon guided to fourth-quarter sales of $240 billion to $247 billion, versus the $244.51 billion consensus estimate — a range that brackets Wall Street's number at both ends.

AWS Growth Comes With Heavy Spending

Amazon Web Services remained the standout, with revenue up 39% to $46 billion — the unit's fastest annual growth in nearly five years and now roughly 23% of Amazon's total quarterly revenue. Chief Executive Andy Jassy said he expects annual AWS growth to exceed 40% in both 2027 and 2028.

That momentum, however, comes at a steep cost. Amazon plans approximately $220 billion in capital spending in 2026, and Jassy said outlays would be “meaningfully more” in 2027. Free cash flow swung to a $42.4 billion outflow over the past 12 months, compared with a $14.8 billion inflow a year earlier — a reversal of more than $57 billion that captures the cash demands of the AI infrastructure race. Cloud competitors are scaling up as well: Microsoft reported 40% Azure growth in its latest earnings update, a reminder that Amazon is not alone in spending aggressively to capture AI workloads. Evercore ISI analyst Mark Mahaney said AWS margins and the segment's backlog remain important measures for investors.

Analysts Seek Clarity on Spending Peak

Blue Line Capital's Bill Baruch said investors need clearer guidance on when Amazon's spending will peak. He pointed to the company's roughly $496 billion AWS backlog — contracted revenue awaiting recognition — and demand for its custom Trainium chips as factors to watch in upcoming reporting periods. How quickly that backlog converts into revenue, and at what margin, is the follow-through question for the quarters ahead.

North American sales grew 6%, while international revenue increased 5%. Maxim Group analyst Tom Forte cautioned that higher gasoline prices could restrain holiday shopping, though he maintained a Buy rating and a $350 price target on the stock.

Delivery Competition Adds Pressure

Forte also flagged intensifying delivery competition. DoorDash recently announced a proposed $17 billion acquisition of Instacart, which would expand its grocery business if regulators and shareholders approve the transaction — a sign of how the grocery and last-mile delivery lanes next to Amazon's core retail business are drawing new competition. Adding a longer-term concern, Deepwater Asset Management's Gene Munster warned that personalized AI shopping assistants could begin challenging Amazon's retail business from late 2027.

Source: Blockonomi — Amazon (AMZN) Stock Plunges as AI Spending Concerns Mount