Amazon.com (NASDAQ: AMZN) posted Q3 net sales of $201.9 billion, up 12% year-over-year and just shy of the $202.2 billion consensus. The EPS miss ($1.89 against $1.97) looks worse than it is. The year-ago quarter carried a $9.5 billion pre-tax gain from the Anthropic investment, while operating income surged 61% to $28.1 billion. That gap between reported earnings and operational reality sets the stage for the quarter. Two forces are colliding: AWS is accelerating, and the bill for that acceleration is coming due.
Cloud was the star. AWS net sales hit 39% growth, the fastest pace in nearly five years, putting the division on a $184 billion annualized run rate. Segment operating income climbed 55% to $17.8 billion, with margin at 38.7%. That dipped from 39.4% in Q2 but remains far above the 34.6% of a year ago. Then came the surprise. CEO Andy Jassy projected AWS revenue growth will exceed 40% in both 2027 and 2028, an unusually precise multi-year target from a management team that normally shuns such forecasts. If that guidance holds, AWS's reacceleration is structural, not a blip, powered by enterprise AI workloads shifting to the cloud.
Retail had a quieter quarter. North America sales rose 6%, and international climbed 5%, or 8% once currency moves are stripped out. The Prime Day calendar shift shaved roughly 400 basis points from reported retail growth. Even after accounting for that, the step-down from Q2's 16% North America clip is hard to miss. Advertising grew 11% excluding FX, cooling from 26% in Q2 on what management called Prime Day timing anomalies. Amazon expects ads to return to high-teens growth in Q4.
Operating margin hit 13.9%, a record. AWS profitability and tighter fulfillment costs delivered that. North America operating margin clocked in at 7.7%, off the 7.9% from Q2 but still far above the 4.5% of a year earlier. International held steady at 3.7%. Amazon is keeping more of every dollar it takes in, even as it pours money into infrastructure.
The investment bill is what matters most. Trailing-twelve-month free cash flow flipped to a $42.4 billion outflow from a $14.8 billion inflow a year ago, after property and equipment purchases surged by $94.8 billion. Amazon still guided to roughly $220 billion in 2026 capex, a sum larger than the total market value of most public firms. Operating cash flow did rise 29% to $168.3 billion. Still, the spread between cash generated and cash spent is ballooning fast.
For Q4, Amazon guided to net sales of $240 billion to $247 billion (12%–16% growth) and operating income of $28.5 billion to $33.5 billion. At the midpoint, that implies operating margin near 12.7%, below the Q3 record. Management is bracing for a retail-heavy holiday mix to drag on profitability seasonally. Everything comes back to capex. If AWS growth sustains above 40%, the $220 billion outlay in 2026 will look smart. If not, the cash flow math gets uncomfortable fast.