Round after round of "historic crashes"! Google's sickness has now infected Amazon

Cloud computing business continues to accelerate, but it’s hard to conceal the sluggish core of e-commerce — Amazon is undergoing a market test similar to what Google has experienced.

According to the Q3 earnings report, Amazon’s total revenue rose 12% year-on-year to $201.9 billion, below analyst expectations. AWS’s revenue growth accelerated for the sixth consecutive quarter, but online retail sales growth fell to a three-year low, and the advertising unit also posted its lowest growth rate on record. Meanwhile, device and property expenditures in the third quarter exceeded $77 billion, far surpassing market expectations, with free cash flow recording a negative $42.4 billion over the past 12 months.

After the earnings report, Amazon’s stock fell about 7% in after-hours trading, after having gained around 5.6% cumulatively this year. This drop closely mirrors Alphabet’s recent experience — the latter’s shares plunged 13% at Thursday’s close due to search and advertising revenue missing expectations, marking its largest single-day drop ever.

AWS accelerates, but the “beat expectations” bar has been raised by Microsoft

AWS Q3 revenue grew 39% year-on-year to $46 billion, higher than last quarter’s 37% growth and marking the sixth consecutive quarter of acceleration. CEO Andy Jassy said during the earnings call that AWS’s core compute and storage rental business is growing at “the fastest pace in years,” and expected AWS to achieve over 40% year-on-year growth annually for the next two years.

AWS’s growth was partly driven by demand from AI companies like OpenAI and Anthropic, both of which rely on Amazon servers to run their models. Jassy also revealed that the company’s self-developed AI chip, Trainium, would begin selling to external customers by the end of 2027.

However, AWS’s impressive performance failed to completely reassure the market. Emarketer analyst Sky Canaves commented: “While AWS’s accelerating growth didn’t meet the overinflated expectations, it also didn’t surpass the higher competitive benchmarks set by Microsoft and Google. Improvements in cloud business operating profit margins are a positive sign, but may not be sufficient to relieve concerns over surging capital expenditures and the accompanying steep drop in free cash flow.”

In contrast, Microsoft reported 48% growth in cloud business revenue for the same period, maintained disciplined capital expenditures, and saw its shares drop less than 1% on Thursday.

E-commerce growth at a three-year low, Prime Day timing adjustment blamed

Online sales grew only 2% in Q3 to $68.5 billion, the lowest growth rate since early 2023. Amazon attributed part of the slowdown to the timing shift of the Prime Day sales event — this year, Prime Day in most major markets was moved from the third to the second quarter, so related sales were not included in this quarter’s results.

John Tomlinson, an analyst at research firm M Science, said the relative weakness on the retail side was “partially” due to the Prime Day timing shift, but he also noted: “There’s a crack showing here. The market is extremely focused on the scale of AI spending by each company.”

Sky Canaves further pointed out that the Prime Day adjustment “doesn’t fully explain the softness in online store and advertising growth, which suggests mounting consumer pressures — consumers are beginning to cut back wherever possible, triggering downstream effects on advertisers’ willingness to spend.”

In advertising, Q3 revenue grew 11%, the slowest growth rate since Amazon began disclosing this data separately in 2020. By contrast, from Q2 2025 to Q2 2026, Amazon’s ad unit posted over 20% growth each quarter.

Capital expenditures soar, free cash flow turns deeply negative

Amazon’s third-quarter spending on devices and properties exceeded $77 billion, far surpassing analyst expectations. Free cash flow for the past 12 months stood at negative $42.4 billion, compared to positive $14.8 billion a year ago — this reversal was primarily driven by a $94.8 billion year-on-year increase in property and device purchases.

The company maintained its previously issued forecast in July of around $220 billion in capital expenditure by 2026, but during the earnings call, Jassy stated that 2027 capital expenditures would increase “significantly” further.

This spending pace has unsettled investors. Bloomberg noted that even for a highly diversified company like Amazon, robust cloud growth hasn’t dispelled market worries about the speed of AI investments.

Q4 guidance below expectations, consumer-side concerns emerge

Amazon expects Q4 (holiday shopping season) revenue between $240–$247 billion, versus the analyst average of $244.5 billion, with the midpoint of guidance just below expectations. Operating profit is forecast at $28.5–$33.5 billion, compared to analysts’ average estimate of around $33 billion, with the lower end of guidance notably below the market consensus.

Q3 operating profit was $17.8 billion, up from $11.4 billion in the same period last year.

Jassy emphasized the health of the company’s core business on the earnings call. He noted that grocery and daily goods sales totaled nearly $250 billion in the 12 months to September, growing three times faster than overall e-commerce, and accounting for about half of all merchandise sales units in Q3. Shopping chatbot Alexa for Shopping had over 400 million users in the past 12 months, up from 350 million disclosed last quarter.

But these positive signals were not enough to reverse the after-hours stock slide.

Sharing Alphabet’s woes, market sentiment highly correlated

The market reaction that Amazon faced this time closely echoes Alphabet’s experience. Alphabet’s Q3 report showed search ad revenue rising 12% to $63.3 billion, below the market estimate of $64.9 billion, free cash flow recorded negative $9.1 billion, and shares plunged 13% at Thursday’s close.

Alphabet’s management described the delayed monetization of AI search as a deliberate choice on the earnings call, with CEO Sundar Pichai comparing the current phase to the company’s shift to mobile a decade ago: “Just as we moved to mobile ten years ago, we’re focused on first building the best search user experience, then monetizing after.” But the market isn’t buying it.

The shared predicament of both companies reflects the same underlying market thesis: investment in AI is visibly suppressing core business cash flow and growth, while the timeline for monetization remains unclear. By contrast, Microsoft has emerged as one of the few tech giants to satisfy investors this earnings season thanks to high cloud growth and disciplined capital spending.