Best margin ever, stock still down. Welcome to the Amazon earnings puzzle: the company put up its best number ever on one key measure, yet the stock is still about 11% below its August high. It all comes down to one very big number, roughly $220 billion in spending this year alone.
Here’s what the company reported on Oct. 29. Net sales rose 12% to $201.9 billion, and operating income jumped to $28.1 billion, up from $17.4 billion a year earlier. That works out to a 13.9% operating margin, which Amazon calls its highest ever.
Why the Amazon earnings still spooked investors
Look closer and the report was a split decision. Earnings per share came in at $1.89, down from $1.95 a year ago, and below the roughly $1.97 analysts expected, according to MarketBeat. Revenue also landed just under the Street’s $202.2 billion target.
Part of that drop is an accounting quirk. Amazon says last year’s profit was padded by $9.5 billion in pre-tax gains on its Anthropic investment, which makes this year’s comparison look worse than the business really is.
Still, investors reacted fast. In the hour after the release, shares slid from about $254 to $229. So who got spooked, and why?
Amazon isn’t the only one who has had this kind of day. Apple had a similar one, when a beat on estimates still ended in a falling stock over margin worries.
Amazon quarterly results: the cloud is booming, the cash is not
The star of the quarter was Amazon Web Services. AWS sales grew 39.3%, which Amazon says is its fastest pace in nearly five years. Its annualized run rate now sits at $184 billion, and AWS operating income hit $17.8 billion.
The worry, however, is what it costs to keep that growth going. Management expects about $220 billion in capital spending in 2026, mostly for AWS, and has said it will spend “meaningfully more” in 2027.
As a result, free cash flow over the past 12 months was a $42.4 billion outflow. That kind of AI spending is not unique to Amazon, and Super Micro’s AI server sales nearly quadrupled on the same wave.
CEO Andy Jassy is betting it pays off. He pointed to projected revenue growth rates of over 40% in both 2027 and 2028, as quoted by Yahoo Finance. That’s a bold promise, though it’s a view, not formal guidance.
Amazon third-quarter earnings and the stock’s rebound
The stock didn’t stay down. On Nov. 2, shares climbed about 5% to roughly $252 after Phillip Securities upgraded Amazon to Buy and lifted its price target to $330. UBS has a $352 target. Jim Cramer said last week that “Amazon should be bought right here.”
Even so, the gap to the peak remains. Amazon’s all-time closing high was $284.02 on Aug. 3, so a recovery to about $252 still leaves the stock roughly 11% short.
That’s the same gap the Motley Fool measured back in mid-October, before the Amazon Q3 report landed. In other words, the stock fell, bounced, and ended up about where it started. (Wall Street’s version of a very expensive treadmill.)
What the Amazon earnings mean for your wallet
Here’s the thing: if you shop on Amazon, the spending shows up in places you can feel. More than 1.5 billion items arrived same-day or overnight for Prime members in one quarter. Amazon Now, its ultra-fast delivery service, is in over 450 towns and cities, and orders are up 10x from a year ago. Three-hour Amazon Pharmacy delivery has reached more than 350 cities.
If you own the stock, perhaps through a retirement fund, the question is simpler. Can $220 billion a year of AI spending earn its money back?
Nobody knows yet, and that’s the whole debate. Meanwhile, Amazon’s quarterly results sit alongside bigger bets across retail, such as Walmart’s $6 billion robot deal for its warehouses.
Next up is the holiday quarter. Amazon guided to $240 billion to $247 billion in sales, a midpoint slightly under what analysts wanted. The next full report lands in early 2027.
So can record margins and record spending both turn out to be good news? Amazon has one holiday season to start proving it.
