Amazon Q3: AWS Up 39% to $46bn, Record Margin

Amazon’s cloud business grew at its fastest pace in nearly five years in the third quarter, and the company as a whole turned a larger share of sales into operating profit than ever before. Amazon Web Services (AWS) sales rose 39% to $46.0 billion in the three months to 30 September, Amazon said in its results release on 29 October, which it also filed with the SEC as exhibit 99.1 to a Form 8-K.

Group operating income rose to $28.1 billion from $17.4 billion a year earlier. Amazon said that gave an operating margin of 13.9%, “Amazon’s highest operating margin ever”. Net sales rose 12% to $201.9 billion, or 13% excluding currency moves.

Net income still fell, to $20.7 billion or $1.89 a share from $21.2 billion or $1.95. Amazon said the decrease was “driven primarily by pre-tax gains of $9.5 billion in third quarter 2025” from its investments in Anthropic, which flattered the year-earlier figure.

AWS carries the profit

AWS operating income rose to $17.8 billion from $11.4 billion. Amazon put the business at a $184 billion annualised revenue run rate. By TSN’s arithmetic, AWS made up about 23% of sales but about 63% of operating income, and its segment margin widened to roughly 39% from about 35%.

The retail segments also improved. North America operating income rose to $8.7 billion from $4.8 billion on sales up 6% to $112.9 billion, and International operating income rose to $1.6 billion from $1.2 billion.

Headline sales growth was held back by the calendar. Prime Day fell in the second quarter this year in most large countries, against the third quarter in 2025. Amazon said that “excluding this shift, third quarter year-over-year growth would have been approximately 400 basis points higher”. Advertising revenue, which the supplemental tables put at $19.6 billion, grew 12% excluding currency, which Amazon attributed to “timing anomalies primarily related to Prime Day”. It expects advertising growth “in the high teens” in the fourth quarter.

Chief executive Andy Jassy said: “Our AWS investment in functionality and infrastructure is working, with over 39% year-over-year revenue growth in Q3 ($184 billion revenue run rate) and projected revenue growth rates of over 40% both in 2027 and in 2028.” That over-40% figure for the next two years is Amazon’s own projection, not a reported result. Jassy added: “There has never been a trillion dollar revenue business, and we may have two of them in the next 5-10 years.”

AI services and the spending bill

The release gives several measures of AI demand on AWS. Amazon said Fortune 500 companies were spending “nearly 7x” more on Bedrock, its AI model service, than a year earlier, and that Bedrock token volume had grown “nearly 17x”. Customers of AgentCore, its service for running AI agents, deployed “2x more agents in Q3 than the prior three quarters combined”. Amazon also listed new AWS agreements with companies including Meta, NVIDIA, OpenAI and Oracle, and tools such as TorchNeuron for its Trainium chips.

The cost shows up in the cash flow. Operating cash flow rose 29% to $168.3 billion over the trailing twelve months, but free cash flow swung to an outflow of $42.4 billion, from an inflow of $14.8 billion a year earlier. Amazon said that was driven mainly by a $94.8 billion rise in purchases of property and equipment, which “primarily reflects investments in artificial intelligence”. The supplemental tables put those purchases at $210.7 billion over twelve months.

Amazon kept its full-year plan: “We continue to expect 2026 cash capital expenditures to be approximately $220 billion.” For the fourth quarter it guided to sales of $240.0 billion to $247.0 billion, up 12% to 16%, and operating income of $28.5 billion to $33.5 billion, against $25.0 billion a year earlier.

Why the margin record matters for the AI build-out

Like its rivals, Amazon is spending first and asking investors to wait for the return. This quarter gives it operating numbers to point to. AWS added about $13 billion of sales year on year, around 60% of the group’s $21.7 billion increase by TSN’s arithmetic, and its operating income grew by $6.4 billion. That is the answer Amazon wants investors to take from the record 13.9% group margin.

It also makes the comparison with this week’s other cloud results more direct. Microsoft’s Azure grew 48% and Google Cloud more than doubled from smaller bases, while AWS grew 39% on a much larger one. All three are spending more on data centres than they generate in free cash. Amazon’s twelve-month free cash outflow was $42.4 billion, and its $220 billion plan has not changed since Jassy said last week that AWS capacity is sold out for 2026.

The risk is in the projection. Growth of over 40% in 2027 and 2028 is Amazon’s forecast, and it depends on new capacity arriving on time and on customers such as OpenAI and Meta continuing to buy it. The headline profit figure also needs reading carefully. The fall in net income is an accounting comparison with last year’s Anthropic gains rather than a weaker business, while the operating figures show improvement across all three segments. Jassy described newer businesses, from Grocery to Amazon Leo satellite broadband, as “progressing encouragingly”, but the release gives no separate figures for them.