$AMZN · The Motley Fool · 2026-11-09

Now let's turn to a completely different type of business. Let's talk about a large technology company. Let's talk about Amazon. This is certainly a well-known name that needs no introduction.

Basically, this business is currently based on three main areas. They have the online retail marketplace, Amazon Web Services or AWS, which is the cloud computing division, and of course their rapidly growing advertising business that is based entirely on retail traffic.

Of course, they also have the entertainment division . They have other aspects of their business, but these three are currently driving the most growth. The interesting thing is that even though AWS is smaller than the retail business in terms of revenue, it is the largest source of real profit.

This is because cloud computing is much more profitable than retail.

We also see that Amazon is investing in new and long-term areas. Such as grocery business, pharmacy . They have a satellite internet service called Amazon Kuiper ( Project Kuiper).

And there's their robo- taxi venture Zoox, which I've been following with great interest.

Their CEO Andy Jassy describes it as a big business in its own right in the next 5 to 10 years. Now, Amazon just released its third-quarter earnings report. Overall, it was a pretty good quarter.

AWS revenue grew 40 percent year-over-year to $46 billion. That's their fastest growth rate in five years and six straight quarters of growth. The business is now doing $184 billion annually.

AWS's operating income has grown to about $18 billion, up from about $11 billion a year ago. AWS now accounts for about 63 percent of Amazon's total operating profit.

The company's overall operating income has grown 61 percent to $28 billion. Andy Jassy says that AWS's continued investment in custom chips, such as Trenium, Graviton, and Bedrock, is driving this growth. Accelerating.

Total revenue is about $202 billion. That's slightly below analysts' forecasts. Net income is down a bit, but that's mainly because Amazon took a one-time gain on its stake in Anthropic last year.

So the bottom line is still pretty strong. Revenue growth is continuing.

What investors didn't like —I'm on their side as a long-term shareholder—is that their trailing free cash flow has dropped to negative $42.4 billion.

Also, their long-term debt has increased from $66 billion to $173 billion in the space of nine months. This comes at a time when their 2026 capital expenditure is heading toward $220 billion.

Amazon is once again investing heavily in its AI growth story. They're investing in data centers and chips and using AI to drive core business. Of course, we're seeing AI-driven demand continue to grow.

They've set a target of more than 40 percent growth in both 2027 and 2028.

AWS's backlog is three times that of the previous year. The numbers are growing at a percentage rate. Essentially, that negative free cash flow and the increasing debt are the direct costs of financing this growth story.

More capacity, more chips, and more data centers. In my view , this is not a signal that cloud, e-commerce, or any other business is in trouble.

The question that I, as an investor, and all long-term investors should be asking is, will this cost return a profit that will enable Amazon to meet its growth targets? Amazon is still achieving its best operating profit margin yet.

In the case of AWS, this is their fastest growth in five years. I think it's still a very strong business, but some of the numbers haven't been as the market expected .

Yes, I think Amazon is one of the best businesses of all time and it's a name that you can safely keep in your portfolio for a long time. Yes, it will be and probably in 10 years it will be even bigger, if not bigger.

And as you said, the core business is becoming more profitable. Operating margins are now at record levels.

It's amazing that AWS is expected to grow by more than 40 percent in the next two years. By the end of 2028, the company is expected to have over a trillion dollars in revenue.

Andy Jassy said that in the next 5 to 10 years, they will have two trillion dollar businesses. Probably one AWS and the other is the rest of the businesses.

So yes, Amazon is a really great company and I understand that. It's very important to focus on free cash flow , but if you look at Amazon over the last 10 years, it hasn't always been a free cash flow generating company, because they've reinvested in the business over and over again.

But yes , it's one of the best companies in the market .