Amazon Q3 Earnings: AWS Growth of 39.3% Misses Buy-Side Expectations, Advertising Growth Plummets to 12%

Amazon's third-quarter earnings report delivered a "fire and ice" set of results: the cloud business painted an ambitious trillion-dollar blueprint, while the advertising business offset all the surprises with a growth rate that was halved, catching the market completely off guard. Wall Street ultimately chose to vote with its feet—the stock price fell sharply in response.

Amazon shares plunged 7% after hours. Third-quarter total revenue was $20.19 billion, up 12% year over year, with earnings per share of $1.89, both below FactSet analyst expectations of $20.22 billion and $1.97. AWS achieved 39.3% year-over-year growth, with an annualized revenue run rate of $184 billion; although it slightly exceeded Wall Street's 38% consensus expectation, it failed to clear the "above 40%" threshold that institutional investors had generally set beforehand. Advertising growth plummeted from 26% in the previous quarter to 12%, far below the market's 18% expectation, becoming the biggest negative variable in this quarter's earnings report.

Even more strategically significant was management's forward guidance for AWS over the next two years. CEO Andy Jassy said on the earnings call that AWS is expected to achieve revenue growth of more than 40% in both 2027 and 2028, and is expected to grow into a business with $1 trillion in revenue within five to ten years.

Jefferies analyst Jeffrey Favuzza noted in a post-earnings report that for a cloud giant, providing such a multi-year forward outlook is almost unheard of. However, uncertainty over the advertising business outlook—especially the potential impact of AI agent technology on consumer shopping behavior—makes it difficult for analysts to build full confidence in Amazon's complete growth story.

AWS: Significantly Beat Street Expectations, but Failed to Satisfy Buy-Side Appetite

AWS generated revenue of $45.984 billion this quarter, with year-over-year growth accelerating from 37% in the second quarter to 39.3%, slightly beating Wall Street's 38% consensus expectation. Operating margin was 38.7%, essentially flat with 39.4% in the previous quarter.

However, institutional investors had already raised the expected threshold to 42% or even higher before the earnings release. According to a report by Jefferies analyst Brent Thill, the "above 40%" growth benchmark was a core topic that repeatedly came up in buy-side and sell-side communications over the past several weeks; the final figure of 39.3%, while technically above consensus, clearly fell short of the buy side's true expectations.

The data supporting AWS's long-term narrative was quite impressive. AWS backlog rose 189% year over year to $578 billion, and also increased 17% quarter over quarter.

Andy Jassy disclosed that AWS currently installs an AI accelerator chip every 14 seconds on average, the company's custom chip business grew at a triple-digit rate year over year, and revenue commitments for Graviton and Trainium chips increased more than 20-fold from a year earlier. Amazon also plans to begin selling Trainium chips to customers outside AWS by the end of 2027.

Goldman Sachs analyst Eric Sheridan wrote in a quick earnings note that AWS revenue was above expectations but below the buy side's "above 42%" growth expectation, and this shortfall was one of the "most noteworthy issues" in this earnings report. Jeffrey Favuzza believes that if future external sales of Trainium chips are included in the calculation, there is upside potential for AWS to achieve growth above 40%.

Advertising Business: Prime Day Timing Shift, but Structural Risks Remain

The advertising business was the most controversial segment in this quarter's earnings report. Third-quarter advertising services revenue was $19.64 billion, with year-over-year growth (excluding FX effects) of only 12%, a cliff-like drop from 26% growth in the previous quarter, and also far below Wall Street's expectation of about 18%.

Amazon mainly attributed this anomaly to the timing shift of Prime Day—this year Prime Day occurred in the second quarter rather than the third quarter, so related advertising revenue was pulled forward. The company expects advertising growth to recover to "close to high double digits" in the fourth quarter.

But analysts did not fully accept this explanation.

Brent Thill noted in the Jefferies report that advertising growth of 12% was significantly below the market's 18% expectation; while timing factors certainly existed, the magnitude of the slowdown was still difficult for the market to ignore. The Goldman Sachs research team likewise listed advertising as one of the core areas where results were "weaker than expected" in this earnings report.

Amazon proactively responded to external doubts on the earnings call, saying that its AI shopping assistant Alexa for Shopping has been used by more than 400 million users over the past 12 months, and disclosing that the company has blocked Meta's Muse agent from accessing its platform. Andy Jassy took a relatively conservative view of the impact of third-party AI agents, saying that "not many consumers have completed shopping this way yet, because the experience is not good enough, and it is no more convenient than completing a one-click order directly at the retailer."

However, Emily Collins, Vice President and Research Director at Forrester, noted in a commentary that "the extent to which horizontal AI agents will ultimately disrupt how consumers discover products, and the boundaries of advertising's influence within that, remains an unresolved question for the entire big tech industry."

Analyst Stance: Maintain Buy, but Acknowledge Near-Term Pressure

Despite the overall weak earnings report, major sell-side institutions still maintained Buy ratings on Amazon. Jefferies maintained its "Buy" rating and $330 price target, based on about 15x 2027 EV/EBITDA valuation, implying about 35% upside from the current share price. Goldman Sachs also maintained "Buy," with a 12-month price target of $375 based on sum-of-the-parts valuation, corresponding to about 47% potential upside.

The Goldman Sachs research team expects Amazon's full-year revenue to reach about $825 billion in 2026, and further increase to about $962.4 billion and $1.1 trillion in 2027 and 2028, respectively. Jefferies noted that the stock currently trades at about 10x NTM EV/EBITDA, which has already reflected to some extent the market's concerns about current business performance.

The core issues both institutions are focused on include: the medium- and long-term impact of AI agent commerce behavior on the advertising ecosystem, the match between AWS capacity expansion pace and visible demand, and the degree to which continuously rising capital expenditures are suppressing free cash flow. These uncertainties may be precisely the fundamental reason why Wall Street, while understanding AWS's ambition, remains cautious about Amazon's complete investment story. Risk Disclosure and Disclaimer

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