By Daniel HayesAmazon AWS Q3 sales climbed 39% year over year to $46.0 billion, lifting consolidated third-quarter operating income to $28.1 billion and a record 13.9% operating margin. Total net sales rose 12% to $201.9 billion, though shares edged down 1.41% to $240.35 as 2026 capital spending reached $220 billion.
Net income for the third quarter stood at $20.7 billion, or $1.89 per diluted share, compared with $1.95 per share a year earlier when results included $9.5 billion in pre-tax valuation gains from Anthropic investments. Analysts had projected $1.97 per share on $202.2 billion in quarterly revenue.
Management noted that shifting Prime Day into the second quarter across most major countries reduced third-quarter top-line growth by roughly 400 basis points. Market participants tracking business and retail trends focused on the rapid acceleration inside the cloud computing division.
AWS Backlog Reaches $578 Billion on AI Workloads
Operating income within the Amazon Web Services segment surged to $17.8 billion in the third quarter, up from $11.4 billion in the prior-year period. Contracted AWS backlog expanded to $578 billion as enterprises migrated core databases and deployed generative artificial intelligence models.
Chief Executive Officer Andy Jassy projected that AWS annual revenue growth could exceed 40% in both 2027 and 2028 as new custom silicon and server capacity come online. High-margin digital advertising services also remained a bright spot, with fourth-quarter ad revenue expected to grow in the high teens.
For the fourth quarter of 2026, the Seattle company guided net sales to a range of $240.0 billion to $247.0 billion, compared with consensus estimates of $244.16 billion. Fourth-quarter operating income is projected between $28.5 billion and $33.5 billion, up from $25.0 billion a year ago.
Record Capital Spending Weighs on Free Cash Flow
Building the computing infrastructure required to service a $578 billion cloud backlog has significantly increased capital intensity. Trailing twelve-month free cash flow swung to an outflow of $42.4 billion, driven by a $94.8 billion increase in property and equipment purchases tied largely to artificial intelligence infrastructure.
Full-year 2026 cash capital expenditure is projected at approximately $220 billion, and executives signaled meaningfully higher spending in 2027, with some analysts estimating 2027 outlays could top $300 billion. Quarterly interest expense rose to $1.691 billion from $538 million a year earlier.
Observers also noted that while AI developer Anthropic has committed $110 billion to AWS through 2036, the startup has begun leasing some of its own data center capacity directly. Even so, operating margin expansion across North American and international retail fulfillment continues to generate substantial operating cash flow to backstop cloud expansion.
Custom Silicon Efficiency and Retail Fulfillment Automation
To improve the unit economics of its $220 billion annual capital expenditure program, the cloud division is deploying custom-designed Trainium and Graviton processors across newly constructed data center halls. Offering enterprise customers lower price-performance ratios for model training and high-volume inference helps protect cloud operating margins even as depreciation expenses rise.
Within the core e-commerce business, regionalized fulfillment networks and automated warehouse robotics contributed to the record 13.9% consolidated operating margin in the third quarter. Faster same-day and next-day delivery speeds continue to lift Prime member purchase frequency ahead of the peak November and December holiday shopping period.
