Have you ever watched a stock you love get beaten down by whispers and doubts, only to see it roar back stronger than ever? That’s exactly what happened with Amazon this week, and honestly, it felt like vindication for anyone who’s been holding steady through the noise.
The e-commerce giant dropped its third-quarter numbers after the bell on Thursday, and let’s just say the cloud unit delivered a performance that shut down the skeptics in spectacular fashion. Shares rocketed more than 13% in after-hours trading, pushing toward fresh all-time highs. In my view, this wasn’t just a beat—it was a statement.
Why AWS Just Changed the Narrative
For months, the big question hanging over Amazon has been simple: Is it falling behind in the AI race? Competitors were posting eye-popping cloud growth numbers, while AWS seemed stuck in neutral. Critics pointed to market share erosion, underinvestment in capacity, the works. But numbers don’t lie, and this quarter’s results told a very different story.
Revenue climbed 13% to a whopping $180.17 billion, sailing past the $177.75 billion analysts had penciled in. Earnings per share? A solid $1.95 against last year’s $1.43 and expectations of $1.57. Sure, operating income came in flat at $17.42 billion—below the $19.7 billion forecast—but dig deeper, and the picture brightens considerably.
Special charges totaling $4.8 billion dragged down the headline figure. Strip those out, and operating income hits $21.7 billion. That’s the kind of underlying strength that gets investors excited, especially when the core growth engine is firing on all cylinders again.
The Cloud Comeback Nobody Saw Coming
Let’s talk about the star of the show: Amazon Web Services. Revenue jumped 20.2% year-over-year to $33 billion. Think about that for a second. That’s not just a rebound—it’s acceleration from the 17.5% growth we saw last quarter, and it crushed the Street’s 18% expectation.
Operating margin dipped to about 34.6% from 38% a year ago, but here’s the kicker—it still topped consensus forecasts of 33.9%. And with a $200 billion backlog (up $5 billion sequentially), the future orders are already locked in. Management even hinted at massive unannounced deals closed in October alone that dwarfed the entire third quarter’s volume.
AWS is growing at a pace we haven’t seen since 2022, re-accelerating to 20.2% YoY. We continue to see strong demand in AI and core infrastructure.
– Company CEO during earnings release
I’ve followed tech earnings for years, and rarely do you see a turnaround this clean. The narrative flip was immediate: from “Amazon’s losing ground” to “Wait, they’re actually leading in practical AI deployment.”
Capacity: The Real AI Battleground
Much of the earlier concern centered on infrastructure. Were they building fast enough? The answer, apparently, is a resounding yes. Over the past 12 months, they’ve added more than 3.8 gigawatts of capacity—more than any competitor, they claim. Another gigawatt comes online this quarter, with plans to double total capacity by 2027.
This isn’t just about keeping up. It’s about monetizing demand as fast as it’s added. As the CEO put it on the call, they’re being “very aggressive” because the customer pipeline justifies every dollar spent. When was the last time you heard that level of confidence from a tech giant?
- 3.8 GW added in the last year
- 1 GW more in Q4 alone
- Full capacity doubling targeted by 2027
- All driven by verified AI and core workload demand
Perhaps the most interesting aspect? Their new $11 billion AI data center cluster—Project Rainer—went live this week. Built specifically for advanced model training, it houses nearly 500,000 custom Trainium 2 chips, with plans to scale to a million by year-end. This is Amazon building its own AI moat, chip by chip.
Beyond the Cloud: The Margin Machine Keeps Humming
While AWS grabs headlines, the rest of the business quietly reinforces the bull case. North American sales rose 11%, beating estimates by over $1 billion. International revenue grew 14%, topping forecasts by $250 million. Online stores, third-party services, and especially advertising—all delivered revenue beats.
Advertising, in particular, continues its ascent as a high-margin powerhouse. Every incremental dollar there drops straight to the bottom line, funding more AI investment without sacrificing profitability. It’s a flywheel that’s been spinning for years but feels like it’s hitting a new gear now.
Yes, reported margins contracted in both segments. But adjust for those special charges—$2.5 billion in North America alone—and the trend reverses. Underlying operating margins actually improved year-over-year. That’s the detail that matters for long-term investors.
Capex: Spending Big, But Smart
Capital expenditures hit $34.2 billion in the quarter, above the $31.8 billion expected. Full-year guidance now sits at $125 billion—$8 billion higher than previously signaled—with 2026 spending set to climb further. Analysts currently model $127.5 billion for next year, but expect upward revisions soon.
This isn’t reckless spending. Every major cloud provider reported similar surprises this earnings season, signaling a structural shift in AI infrastructure demand. The hyperscalers aren’t competing on growth percentages anymore—they’re racing to build the physical foundation for the next decade of computing.
Amazon’s advantage? Scale. Their logistics network, built for two-day (now same-day) delivery, gives them unparalleled expertise in complex infrastructure deployment. What works for fulfillment centers translates directly to data center buildouts. It’s not coincidence they’re adding capacity faster than peers.
Guidance: Conservative as Always
Fourth-quarter outlook calls for 10-13% revenue growth to $206-213 billion, with the midpoint beating consensus. Operating income guidance of $21-26 billion aligns closely with expectations. But anyone who’s followed Amazon knows their history: they guide conservatively, then overdeliver.
This quarter proved it again—both sales and operating income landed above the high end of prior guidance. If that pattern holds (and it usually does), we’re looking at potential upside in Q4 numbers when they report in February.
Management has a track record of underpromising and overdelivering—treat guidance as a floor, not a ceiling.
The Investment Thesis, Reinforced
Step back from the quarterly noise, and the long-term story remains intact—maybe even stronger. Amazon dominates e-commerce with logistics infrastructure no rival can match. Prime membership locks in recurring revenue. Advertising grows at premium margins. And now, AWS re-accelerates just as AI adoption hits escape velocity.
The key metric I’ve always watched? Operating margin trajectory. When those lines trend higher—driven by fulfillment efficiencies, regional mix improvement, and high-margin revenue streams—the stock eventually follows. We’re seeing exactly that beneath the special charge distortion this quarter.
| Segment | Reported Margin | Adjusted Margin | YoY Change |
| North America | 4.51% | ~6.9% | Improved |
| International | 2.93% | Expanding | Set for gains |
| AWS | 34.6% | 33.9% beat | Stable high |
At current levels—around $252 in after-hours—the stock trades at roughly 35 times forward earnings. Expensive? Sure. But justified when growth re-accelerates and margins expand simultaneously. The math works when execution matches ambition, and this quarter proved both are aligned.
Risks Worth Watching
No investment is without clouds on the horizon. Regulatory scrutiny remains a wildcard—antitrust concerns could force structural changes. Macro slowdown might pressure consumer spending, though Prime’s stickiness provides a buffer. And yes, capex will stay elevated, potentially pressuring free cash flow in the short term.
But these risks feel priced in after a year of underperformance. The AI capacity buildout is a multi-year commitment, not a quarterly expense spike. And with demand signals this strong, the return on invested capital should justify the spend.
Price Target: Moving to $275
Based on the AWS re-acceleration, continued margin progress, and conservative guidance that likely understates reality, we’re raising our price target from $250 to $275. That implies about 9% upside from current after-hours levels, with potential for more if Q4 delivers another beat.
The stock’s ripping higher tonight for good reason. Sometimes the market needs a reminder of what dominant really looks like. Amazon just delivered it—in server racks, delivery vans, and advertising dollars. The next chapter of this story? I suspect it’s just getting started.
Investors who tuned out the noise and focused on the fundamentals are being rewarded. For everyone else, the question isn’t whether to pay up—it’s whether you’re comfortable watching from the sidelines as the cloud leader reclaims its narrative.
One thing’s clear after this earnings report: the haters were wrong, the capacity is coming, and the growth engine is revving louder than it’s been in years. Buckle up.
