AWS Grows 39%, But AI Spending Hits Amazon Stocks

Amazon Web Services generated approximately $46 billion in revenue for the third quarter of 2026, marking a 39% increase compared to the same period in 2025, according to the earnings report released by Amazon on Thursday (29). This is the fastest growth rate for the cloud unit in nearly five years. Nevertheless, Amazon's shares dropped about 7% in after-hours trading.

The explanation lies outside of AWS. The consolidated earnings per share were $1.89, compared to the $1.97 expected by analysts, and the total revenue of $201.9 billion, which was a 12% increase, came in slightly below projections. The group's operating margin of 13.9% was the highest in the company's history, which says a lot about market sentiment: a record profitability was not enough to offset the investment burden.

The Portfolio Justifying the Spending

Andy Jassy, CEO of Amazon, told analysts that the AWS contract portfolio reached $578 billion, with a year-over-year growth in triple digits. The unit is now operating at an annualized revenue of $184 billion. Jassy went beyond the current quarter, stating that AWS could grow more than 40% in both 2027 and 2028, a rare projection for a business of this size.

The other half of the conference call focused on outflows. Amazon maintained its capital expenditure forecast of approximately $220 billion for 2026, concentrated on AWS and AI infrastructure, and Jassy warned that the figure for 2027 will be "significantly higher." The free cash flow accumulated over 12 months turned negative, according to the company's statement, reversing the positive generation from a year earlier.

Two Interpretations of the Same Figure

For proponents of the thesis, the numbers add up: a $578 billion portfolio is contracted revenue, not imagined demand, and a unit growing by 39% with high double-digit operating margins finances its own capex. This is the distinction often overlooked in discussions about the AI bubble. Amazon is not a laboratory burning through venture capital: it is a company with a record operating margin of 13.9% choosing where to reinvest.

The opposing argument also has figures to support it. An annual investment of $220 billion, which is expected to rise in 2027, far exceeds any quarterly profit from the company, and the negative free cash flow indicates that, for now, the cloud is not self-funding its expansion. Multi-year contracts can also be renegotiated if AI clients' economies change. The relevant question for investors is not whether AWS is growing, but in which year capex stops outpacing revenue growth.

There is also an accounting noise that weakens the negative retail narrative. Amazon held Prime Day in the second quarter in most major countries in 2026, while in 2025 the event occurred entirely in the third quarter. Part of the frustration with the consolidated revenue is, therefore, a calendar issue.

Where the Effect Reaches

In the United States, where the largest corporate clients reside, the 39% growth indicates that capacity constraints remain the limiting factor, not demand. For a CIO, this means negotiating capacity reservation and pricing for AWS's own GPUs and chips well in advance, as the queue is for the $578 billion already contracted.

In India, the effect filters through integrators. TCS, Infosys, Cognizant, and Accenture account for a significant portion of the teams executing migrations and AI projects on AWS. A unit that promises to grow over 40% annually until 2028 sustains demand for these teams, but AWS itself is pushing automation tools that reduce engineering hours per project. The gain in volume and the loss of billable hours arrive simultaneously.

In Brazil, the São Paulo region has been operating since 2011 and serves banks, retailers, and the public sector. There, the focus is on cost: with a global investment of $220 billion concentrated on AI capacity in the United States, Brazilian clients who need to keep data in the country are competing for a smaller volume of local accelerator capacity, and prices are expected to reflect this.

In Germany, where AWS set up its European sovereign cloud in Brandenburg, the pressure is regulatory. Clients from the public and financial sectors in Europe require processing within the European Union, forcing Amazon to duplicate part of the investment instead of consolidating it in large American campuses.

The common point across the three markets is that the target of growing over 40% in 2027 and 2028 has become the standard by which capex will be evaluated. Jassy has publicly set the benchmark; in the upcoming earnings reports, the market will hold AWS accountable to it, rather than the record 39% from this quarter.