$AMZN · Daniel Pronk · 2026-10-29

Amazon's stock was down 7% in after-hours trading at the time of this video being recorded, following the announcement of its third-quarter results , after the stock had fallen 4 % during the day's trading.

Interestingly, as we shall see, Amazon's profits were not bad at all . In fact, they went beyond their own instructions. So, to be completely transparent, I increased my position in Amazon stock during after-hours trading after seeing the earnings report, and Amazon remains the second largest position in my investment portfolio.

As a long-term investor, I am very surprised that Amazon's stock has taken such a big hit now. But just as with Google's earnings, there's a lot of noise in Amazon's report and there are many things that Wall Street can criticize, point out, and say are bad.

And I think this is the kind of narrative we'll see in the short term here.

We can see that Amazon achieved an operating income of $28.1 billion and an operating profit margin of 13.9%. This is the highest operating profit margin Amazon has ever achieved.

So , Amazon's profit margins continue to expand.

Amazon Web Services (AWS) revenue grew by 39.3%, meaning the service continues to accelerate and now generates $184 billion in annual revenue. This is a business that generates nearly $200 billion in revenue, and is growing at a rate of 40% annually. This is unbelievable .

However, we can see that total sales grew by only 12%, and by 13% on a foreign exchange neutral basis. This is because Prime Day was in the third quarter of last year versus the second quarter of this year, which means there is a hurdle to overall revenue growth this quarter because last year's comparisons were slightly better.

On a like-for-like basis, Amazon says revenue would have grown by an additional 4% to 17% on an exchange rate-neutral basis . So, Amazon is still growing very fast , but as I said, this quarter will be a bit more volatile.

Moving on , we see that North American sales rose by 6%, international sales rose by 5%, and once again AWS revenues rose by 39% to $46 billion this quarter. North American operating income reached $8.7 billion, an increase of 81%.

International operating income rose by 30%, while AWS operating income rose by 56%.

So, as you can see, Amazon's profit margins are expanding in AWS and are expanding significantly in its North American business.

Moving on, we can see that operating cash flow in the past twelve months has now reached $168.3 billion, a 29% increase year-over-year. So, Amazon's operating profit continues to grow very well.

For Amazon , especially right now, I think earnings and free cash flow literally make no sense . Therefore, I will not even discuss them. I believe the most important thing to focus on as a long-term investor in Amazon is the growth of its operating profits and cash flows.

This is a small surprise in the earnings report that I have n't seen many people talking about online yet. Here, Amazon expects AWS to achieve revenue growth of 40% in 2027 and 2028.

Now, AWS is on track to achieve $200 billion in annual revenue by the end of 2026, which means it will generate around $280 billion in revenue the following year, and then $392 billion in 2028.

Or in other words, Amazon believes that AWS revenue could double over the next two years.

AWS also currently has an operating profit margin of 37%. This means it could generate $145 billion in operating income in 2028. As AWS continues to make up a larger portion of Amazon's revenue, Amazon's overall profit margins will also continue to expand .

Another thing they mentioned here is that there has never been a business with trillion-dollar revenues, and that Amazon could have two of them within the next five to ten years.

This essentially means that their online sales business, i.e., e-commerce, could generate revenues exceeding $1 trillion over the next decade, along with AWS services. They believe AWS could reach $1 trillion in revenue within the next decade.

As someone who plans to hold Amazon stock for the next decade , the idea that AWS alone will generate $1 trillion in revenue by 2036 is unreasonable. This makes Amazon look like a very winning deal today.

So, while the market is panicking because of a lack of earnings per share or because the advertising business didn't grow fast enough this quarter, when I think long-term, this company still looks like a bargain today.

I am very shocked that the market is ready to bring down the stock price so quickly.

Okay, this next screenshot shows us the forecast for the fourth quarter. Amazon expects revenues of between $240 billion and $247 billion, representing growth of 12 to 16%. Advertising revenue also grew by only 12% this quarter, a lower figure because Prime Day fell in the third quarter of last year, and advertisers spent a lot of money during it .

Therefore, the advertising business faced enormous headwinds with respect to overall year-on-year growth rates in this particular quarter.

Amazon then says that advertising revenue is expected to grow by a high double-digit percentage through the end of the year. Therefore, the advertisements should give us a more realistic comparison in the fourth quarter.

Operating income is expected to range between $28.5 billion and $33.5 billion, representing a profit margin of between 12 and 13.5%. Therefore, operating income is expected to be very strong towards the end of the year.

Amazon has maintained its capital spending guidance at $220 billion for this year. So they did not raise their 2026 capital spending guidance. Overall, it appears that Amazon still expects strong growth towards the end of the year, which is a good thing.

Okay, now let's move on to Amazon's cash flow statement. Interestingly, Amazon has seen its stock-based compensation decrease by approximately $200 million over the past twelve months.

I believe that Amazon is the only major cloud provider that is actually seeing a decline in its equity-based compensation.

Moving on to operating cash flow. Operating cash flow reached $42.4 billion this quarter, an increase of 19% year-over-year. Operating cash flow has increased by 34% since the beginning of the year, and as we saw previously, by 29 % over the past twelve months.

However , Amazon's capital expenditure is rising significantly, and Amazon is suffering from a very negative free cash flow . In this quarter alone, they lost $35 billion in free cash flow and borrowed $48 billion in debt.

Since the beginning of the year, they have lost 62 billion in free cash flow and borrowed 115 billion in debt. In the past twelve months, their free cash flow was -47 billion, and they raised 130 billion in debt.

I think this shows us that Amazon is the most aggressive investor among the cloud computing giants, and the company most willing to go for negative free cash flow, which I actually like as long as the opportunity to build AI infrastructure is there and will generate a high return on investment.

If that happens, Amazon is well-positioned to generate the greatest profits and shareholder returns in the long run, because it is once again the most aggressive company in seizing this opportunity.

But since Amazon is currently borrowing a lot of debt, I thought it was worth taking a quick look at its balance sheet . Amazon still has current assets that are roughly equal to its current liabilities, meaning the company remains highly liquid.

Also, when you take into account that it generates nearly 200 billion in operating cash flow in addition to having a current ratio of 1. Long- term debt is only 173 billion. I know I'm saying it's only 173 billion, but for Amazon and the level of profits this company makes, that amount isn't really that big.

So, in my opinion, debt is not a problem for Amazon. But it is clearly not sustainable to accumulate 100 billion in debt every year forever.

But this makes the market more cautious and analysts more worried; Because if Amazon borrows to finance the construction of artificial intelligence, and then this construction does not generate a positive return on investment , Amazon will remain burdened with a lot of debt that does not actually generate any profits for the company.

So , this is not ideal for analysts, but if there is a positive return on investment, Amazon will benefit enormously.

Okay, let's move on to the next screenshot. This is my favorite table of Amazon's earnings report each quarter. It shows us all their different business sectors and their annual growth rates .

So, starting from the top, we can see that online stores have grown by 2 % year-on-year. Physical stores grew by 2%, third-party services revenue grew by 10%, and advertising grew by 12%, so you can see there was a significant slowdown here.

In the second quarter, advertising saw revenue growth of 26%. Therefore, a slowdown to 12% is not what the market wanted to see.

However, we can see that Amazon Web Services (AWS) has accelerated to 39% growth, and it looks like it will continue to accelerate until 2027. Frankly, these numbers look bad at first glance, but you have to realize again that their biggest shopping event was in the third quarter of last year, and yet they are still achieving growth exceeding 10% in many of their major businesses.

But as I said earlier, the fourth quarter will be a better reflection of Amazon's actual growth. Despite this, Amazon Web Services (AWS) continues to be a resounding success .

What this first graph shows us is the net advertising revenue added per quarter for Amazon, Meta, and Google. Here we can see that Amazon did indeed have a weak quarter, adding $1.9 billion in net revenue to its advertising business, just as Google also had a weaker quarter.

Both Amazon and Google make their Meta advertising business and third-quarter report look much better. Amazon is still growing strongly and very steadily, but it is clearly a much smaller company.

The following graph shows us the total growth in advertising business since the second quarter of 2021 when I started tracking all of these metrics. You can see that Amazon's overall growth has slowed considerably this quarter, along with Google's.

Since the second quarter of 2021, Amazon's advertising business has grown more than any other by 200% now, but it is clearly easier to grow from a much smaller base .

Here he says that Amazon has had its weakest advertising quarter since 2023. But he points out that this is because in the third quarter of 2025 Amazon achieved its first big quarter after the launch of Prime Video ads.

And again, they held a Prime Day in the third quarter of last year.

This first graph pertains to AWS revenue growth rates. You can see that AWS revenue growth rates have accelerated to 39.3%. This is the highest revenue growth rate since the first quarter of 2022 when it grew by 39.5%.

I expect AWS growth rates to continue to accelerate.

The following graph simply illustrates the growth of AWS revenue. And you can see how quickly the business is expanding right now. The following graph illustrates quarterly advertising revenue growth rates .

You can see that the rate of growth in advertising revenue this quarter has declined very sharply. And the market really didn't like this at all. It was certainly a weaker quarter for advertising, but in the next quarter we should see a good improvement, and in my opinion the figure should return to around 18 to 19%.

I also believe that the weaker quarter in advertising is fueling concerns about AI agents disrupting Amazon's advertising business. I think this is something you'll start hearing more about over the next three months until Amazon announces its results again.

So yes, expect the pessimists to come out and attack this particular number.

To begin with, one analyst asked about the slowdown in AWS revenue growth on a quarterly basis. Andy Jassey replied that this was due to the timing of AWS capacity coming online.

It really depends on when capacity is added, and it is not a reflection of overall demand. AWS also has a good view of revenue figures for 2027 and 2028 because capacity is already booked.

So these are essentially guaranteed revenues, and that's why they gave us 40% year-on-year growth rates for the next two years.

However, Amazon did not provide guidance on AWS profit margins, and analysts did not seem to like that. Analysts also asked when Amazon would start selling Tranium chips externally, and Amazon said that would start in late 2027.

They said that Tranium sales would accelerate growth immediately, but they are needed internally, and Tranium will generate cash within AWS for the next five to six years.

AWS order backlog was also reported at $578 billion, up $82 billion from the previous quarter and 289% year-over-year. Core computing and storage revenues have grown at the fastest pace in years , and overall demand for AI computing still far outstrips supply.

So, Amazon leaves potential revenue, just like Google Cloud and Microsoft do. They then said that Bedrock is the fastest-growing multi-billion dollar service in AWS history, and that Fortune 500 companies are spending seven times more on Bedrock than they used to on an annual basis.

The chip business is also still growing at triple-digit rates, and revenue commitments have increased 20-fold year-over-year. So, Amazon's chip business continues its tremendous growth.

They also stated that advertising revenue would have achieved an additional 8.5% growth rate on a like-for-like basis if Amazon Prime had not been included in the third quarter of last year.

This means that Amazon's advertising revenue would have grown by more than 20% this quarter. I repeat, if the calculation is done on a comparative basis.

Finally, Jassie said that agents do not influence advertising in any way . Prime Video also generates tens of billions in advertising revenue. Amazon's operating cash flow was $168.3 billion over the past twelve months , and its market capitalization is $2.53 trillion in after-hours trading .

This means it is trading at 15 times its operating cash flow. If we look at Amazon’s history of price-to-operating cash flow ratio since 2008, we find that the median has been 25.8.

Therefore, 15 times operating cash flow is very low for Amazon compared to its historical valuation, especially when we consider that the company's profit margins are currently expanding and reaching record levels.

It is also interesting that you have to go back to January 2009 to see Amazon with a price-to-operating cash flow ratio of less than 15. Even in February 2009, the ratio had risen to 15.6.

And again, now in after-hours trading , the stock is trading at around 15, exactly at the 15 level. Its lowest point recently was around 15.5 during the market correction that took place in March of this year.

And now the price is even lower. So, Amazon is literally at the lowest price-to-operating-cash-flow ratio the stock has traded at since 2009, which is close to the period of the financial crisis.

This is one of the reasons why I think Amazon looks very cheap in the market right now.

In addition, I updated Amazon's discounted cash flow (DCF) models . As you always know, I prefer to use Amazon's operating cash flow. I have included the updated figure for the past twelve months here.

Over the next three years , if Amazon can continue to grow its operating cash flow at 20% annually, which I believe it will, especially if AWS continues to grow at 40% annually and trades at a price-to-operating cash flow multiple of 17, which takes into account some expansion in the multiples but is still well below the company's long-term averages , then the stock price could grow by 21.6% annually over the next three years.

I don't think this financial model is overly optimistic. In fact, I think it's a very conservative financial model . For example, analysts expect Amazon's operating cash flows to grow by 28% annually over the next three years.

If the price-to-earnings ratio manages to return to 19, the stock could achieve a compound annual growth rate exceeding 30% from its current price.

Even with my discounted cash flow model, which I consider very conservative, I'm still getting a compound annual growth rate of over 20% for Amazon's stock price over the next three years.

That's why I continue to buy Amazon shares, and why they are the second largest asset in my portfolio, because I believe that Amazon will ultimately surpass these numbers by leaps and bounds.

As the return on investment in AI capital expenditures proves worthwhile, I believe its multipliers will expand again. I wouldn't be surprised if I saw Amazon's price-to-operating-cash-flow ratio exceed 20 again sometime in the future.

If they can continue to grow their operating cash flows tremendously by that time, I believe Amazon will deliver significant returns for shareholders. This is actually my investment thesis for Amazon at the moment.

Starting from the top, this quarter was full of confusion because of the timing of "Prime Day" in 2025. As I've said many times, this made the annual growth numbers for retail and advertising look weak, but in reality, they were very good.

Advertising could have grown by more than 20%, and is still expected to grow at high rates in the fourth quarter. The fourth quarter will generally give us a better and clearer year-on-year comparison of Amazon's business and growth rates .

AWS continues to grow tremendously and is expected to grow by 40% in 2027 and 2028, which will lead to AWS generating revenues of nearly $400 billion, and will continue to expand Amazon's profit margins as a whole.

Amazon believes it will have two trillion-dollar businesses within the next decade. The semiconductor business is growing at triple-digit rates, while also generating tens of billions in revenue.

Graviton is the fastest-growing business ever within AWS.

Overall, demand for AWS is still much greater than supply. Amazon shares are now trading at their lowest price-to-operating cash flow ratio since 2009. Meanwhile, margins are reaching all-time highs, and AWS's growth is accelerating strongly.

In my conservative discounted cash flow models, I now get compound annual growth rates exceeding 20 % ​​for Amazon stock over the next three years .

But Amazon is suffering from extremely negative free cash flow at the moment and is carrying a lot of debt to continue funding its AI expansion, and the market clearly doesn't like this.

Amazon still has a very strong balance sheet, but this situation is unsustainable. This is the reality before us.

However, if the return on capital expenditure proves to be high, Amazon will deliver tremendous value to shareholders, and I ultimately increased my stake in Amazon after the earnings report.

Tell me what you think about Amazon's earnings results in the comments section below, and what you think about the current market situation with stocks collapsing across the board, as I clearly believe this report from Amazon was very good .

Not the best, but I don't think the stock is worth such a large drop in after-hours trading, which is why I bought more.