Business 5 min read By Arthur Ellington
Amazon Shares Slide After Record AI Spending Clouds Quarterly Results
Amazon's cloud division is growing, but massive investments in AI data centers and weaker advertising results have led investors to sell the company's shares.
Amazon shares fell after the release of its third-quarter report, as investors were alarmed by the company's record spending on artificial intelligence data centers and weaker results in its advertising business. The company's revenue came to $201.9 billion, slightly below expectations. Profit of $20.7 billion was also below forecasts and declined compared with the same period last year. The company explained the drop in profit by noting that a year earlier it had recorded gains from its investment in AI developer Anthropic. Immediately after the report was published, the shares fell by about 5 percent in after-hours trading.
The main growth driver remains Amazon Web Services, the company's cloud division. Its sales rose 39.3 percent to $45.98 billion, exceeding Wall Street's targets. The results show that demand for the company's cloud services, especially those related to AI, remains high. However, the Seattle-based company continues to spend unprecedented sums to keep up with demand, while the performance of its non-cloud areas is weakening. Amazon confirmed that it expects capital expenditures in 2026 of approximately $220 billion.
Amazon's advertising business grew 12 percent year over year in the third quarter, below analysts' expectations. The operating profit forecast for the holiday quarter is also below Wall Street's estimates. Large investments in AI infrastructure have resulted in a deeply negative free cash flow: over the past year it swung from a positive $14.8 billion to a negative $42.4 billion.
For the current quarter, Amazon expects revenue in the range of $240 billion to $247 billion and operating profit between $28.5 billion and $33.5 billion. The lower end of the profit forecast is below what analysts had predicted. This year the company held its annual Prime Day sale in the second quarter rather than the third, which affected third-quarter results.
Amazon's results followed reports from competitors, including Microsoft and Google's parent company Alphabet, which also reported strong growth in their cloud divisions and sharply rising costs of AI infrastructure. Alphabet also reported advertising revenue growth weaker than expected. Amazon, Microsoft, Alphabet and Meta Platforms are estimated to spend more than $700 billion combined on capital expenditures in 2026, mostly on data centers.
Anthropic's prospectus ahead of its planned initial public offering, published this week, showed how heavily the developer depends on Amazon and other major cloud companies. Anthropic committed to spend at least $110 billion on Amazon's cloud services from May of this year through April 2036, regardless of actual usage. According to the documents, Amazon has invested about $18 billion in Anthropic and committed to invest up to another $15 billion.
Amazon has also entered the holiday season, which accounts for a large share of its annual revenue. The company said it plans to hire 300,000 employees for the holiday period. Over the past three months it has actively promoted hardware products, including Alexa tablets, the Bee wearable AI device and updated Echo lineups. At the same time, while hiring in its warehouse divisions, the company is cutting jobs in other areas: this week 250 employees in its devices and services unit were laid off, and earlier around 1,000 people were cut in its retail division. From late 2025 to the beginning of this year, the company laid off approximately 30,000 workers.
Inside the company, the approach to AI is also being reconsidered. In an internal memo, also published on its blog, Amazon told engineers that they should use AI, but they will be evaluated on results rather than on the number of tokens consumed or the volume of code generated. The memo states: "If your work is not benefiting from modern AI tools, that is an insight, not a failure. Document the reason, share it with your peers, pass it to your manager, and keep looking for solutions."
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