Amazon Q3 Earnings: AWS Up 39%, Free Cash Outflow Widens to $42 Billion
Amazon’s Q3 2026 earnings came in just under the two lines the Street tracks and clearly above the one the company itself guided. Diluted earnings per share were $1.89 against an analyst consensus of $1.96 from 46 analysts, 3.5% below. Net sales were $201,944M against a consensus of $202,265M from 49 analysts, 0.2% below. Consensus is Yahoo Finance analyst consensus, data as of 17:03 ET on October 29, 2026. Amazon reports in US dollars, and so does every figure here.
It is the first miss in at least eight quarters. The previous eight all beat, by an average of 50.4%, including a 215% surprise on the quarter reported in July, and the two largest of those surprises came in quarters whose bottom lines carried the investment gains that did not repeat this time.
Set the quarter against the guidance Amazon gave with its second quarter results on July 30, 2026, and it reads differently. It guided net sales of $197.0 billion to $202.0 billion and delivered $201.944 billion, at the top of the range, and guided operating income of $22.5 billion to $26.5 billion and delivered $28,076M, which is $1.6 billion above the top end.
| Q3 2026 | Q3 2025 | Change | |
|---|---|---|---|
| Total net sales | $201,944M | $180,169M | +12% (+13% ex-FX) |
| Operating income | $28,076M | $17,422M | +61% |
| Operating margin | 13.9% | 9.7% | +4.2 points |
| Net income | $20,685M | $21,187M | -2% |
| Diluted EPS | $1.89 | $1.95 | -3% |
Why earnings per share fell while operating income rose 61%
Amazon explains that combination itself:
“Net income decreased to $20.7 billion in the third quarter, or $1.89 per diluted share, compared with $21.2 billion, or $1.95 per diluted share, in third quarter 2025. This decrease is driven primarily by pre-tax gains of $9.5 billion in third quarter 2025 included in non-operating income (expense) from our investments in Anthropic.”
The non-operating lines show the size of the swing. Other income (expense), net was $(703)M this quarter against $10,186M a year ago, and total non-operating income (expense) was $(1,207)M against $10,748M. Interest expense was $(1,691)M against $(538)M. So the year-ago quarter carried roughly $10.9 billion more in Other income (expense), net alone, and roughly $12.0 billion more in total non-operating income (expense), and the operating business grew into a smaller bottom line. The miss is on a GAAP number against a GAAP consensus, moved by an investment mark.
Across 2026 the marks have run the other way. Nine-month net income was $113,587M against $56,478M, on nine-month Other income (expense), net of $68,359M against $14,052M, and trailing twelve month diluted EPS is $12.37 against $7.08. This year’s reported earnings have been dominated by those gains, and the third quarter is a pause in them rather than a reversal of fortune.
On the operating line, the company’s claim is unambiguous: “Operating income was $28.1 billion and operating margin was 13.9%—Amazon’s highest operating margin ever”.
That 61% deserves the same scepticism, in the other direction. “Other operating expense (income), net” was $2,875M in the third quarter of 2025 against $134M this quarter, and Amazon’s fiscal 2025 Form 10-K states that “During Q3 2025, we recorded $2.5 billion of expense related to the settlement of a lawsuit with the FTC”, recorded in that line and impacting the North America segment. Amazon reports no adjusted operating income, so the next two figures are our arithmetic on its numbers rather than company measures. Add the $2.5 billion back to the year-ago base and operating income grew about 41%. Do the same for North America, the segment the 10-K names, and its operating income rose about 20% rather than the 82% the two reported figures give. Amazon disclosed the charge itself and the reported growth is the correct reported growth, but the base it is measured against carried that charge, and this quarter’s line is $134M.
AWS at its fastest growth in nearly five years
| Segment | Net sales | Y/Y | Operating income | Year ago |
|---|---|---|---|---|
| North America | $112,852M | +6% | $8,723M | $4,789M |
| International | $43,108M | +5% (+8% ex-FX) | $1,580M | $1,199M |
| AWS | $45,984M | +39% | $17,773M | $11,434M |
Both tables above are from Amazon’s third quarter 2026 earnings release, with the changes as the company states them, except the operating margin change, which is our subtraction of two company-stated margins.
AWS did the heavy lifting: “AWS net sales increased 39.3%—its fastest growth in nearly five years—to a $184 billion annualized revenue run rate”. Its operating margin was 38.7% against 34.6% a year earlier, though it slipped from 39.4% in the second quarter of 2026. North America’s operating margin was 7.7%.
Chief executive Andy Jassy tied the growth to the spending: “Our AWS investment in functionality and infrastructure is working, with over 39% year-over-year revenue growth in Q3 ($184 billion revenue run rate) and projected revenue growth rates of over 40% both in 2027 and in 2028”.
Two other lines moved on timing, and the company says so. Advertising services were $19,637M, up 11% and 12% ex-FX, down sharply from 26% ex-FX in the second quarter, which Amazon attributes to “timing anomalies primarily related to Prime Day (and a couple other timing factors)”. Online stores were $68,470M, up 2% ex-FX against 15% in the second quarter. Prime Day fell in the second quarter this year for most large countries and entirely in the third quarter in 2025, and the release says consolidated growth “would have been approximately 400 basis points higher” excluding that shift.
Cash generated against cash spent, over the trailing twelve months
On a trailing twelve month basis, Amazon generated $168,300M of operating cash flow and spent $210,657M on capital expenditure, leaving free cash flow of $(42,357)M. Free cash flow is Amazon’s own non-GAAP measure, defined in its footnote as “cash flow from operations reduced by ‘Purchases of property and equipment, net of proceeds from sales and incentives.'” It is never a quarterly figure.
| TTM ended | Q2/25 | Q3/25 | Q4/25 | Q1/26 | Q2/26 | Q3/26 |
|---|---|---|---|---|---|---|
| Operating cash flow | 121,137 | 130,691 | 139,514 | 148,531 | 161,403 | 168,300 |
| Capital expenditure | 102,953 | 115,903 | 128,320 | 147,299 | 169,007 | 210,657 |
| Free cash flow | 18,184 | 14,788 | 11,194 | 1,232 | (7,604) | (42,357) |
USD millions, from the release’s “Cash Flows and Shares” supplemental table.
Cash generated against cash spent on property and equipment, each column the trailing twelve months ended that quarter. Source: Amazon’s third quarter 2026 earnings release, “Supplemental Financial Information and Business Metrics”, “Cash Flows and Shares” table.
Both lines are rising, and not at the same speed. Year over year, on the company’s own stated figures, operating cash flow grew 29% and capital expenditure grew 82%. The two lines crossed in the twelve months ended the second quarter of 2026, and the gap has widened since. Amazon attributes the outflow primarily to “a year-over-year increase of $94.8 billion in purchases of property and equipment, net of proceeds from sales and incentives”, an increase that “primarily reflects investments in artificial intelligence.”
In the quarter alone, purchases of property and equipment were $77,259M against $35,095M a year earlier, and Amazon raised $48,102M of long-term debt in the three months ended September 30, 2026. That is the funding side of the same story.
Capital expenditures by fiscal year, on Amazon’s own measure, purchases of property and equipment net of proceeds from sales and incentives. Source: Amazon’s Forms 10-K for fiscal 2025, 2024 and 2022, “Free Cash Flow” non-GAAP reconciliation tables.
Fiscal 2025 capital expenditures were $128,320M, and Amazon now expects “2026 cash capital expenditures to be approximately $220 billion”.
That spending becomes depreciation later. The depreciation and amortization line in the cash flow statement, which covers property and equipment, capitalized content, operating lease assets and other, was $20,949M in the quarter against $16,796M a year earlier, and $79,353M across the trailing twelve months against $61,916M. The same twelve months carried $210,657M of spending on property and equipment net of proceeds, so the gap between the two is a cost that arrives in later periods.
The assumption underneath that schedule has moved three times in five years, most recently the expensive way. Effective January 1, 2025, Amazon shortened the estimated useful life of a subset of its servers and networking equipment from six years to five, which its fiscal 2025 Form 10-K says increased depreciation by $1.4 billion and reduced net income by $1.0 billion, “primarily impacting the AWS segment”, and which it attributes to the increased pace of AI-driven technology development. The two earlier changes, effective at the start of 2022 and of 2024, both lengthened server lives and both increased reported income. AWS’s 38.7% operating margin rests on an asset base whose depreciation schedule the company has revised three times, most recently in the direction that costs more.
Alphabet reported its own third quarter within a day of this one and also lifted capital spending, and the two read together show how much of this build is being funded off two balance sheets: the figures are in our piece on Alphabet’s Q3 2026 results. The question that follows north of the border is which Canadian companies sit in the path of American capital spending on this scale, which is what we measure in our ranking of Canadian AI stocks.
Fourth quarter guidance, in Amazon’s words
- “Net sales are expected to be between $240.0 billion and $247.0 billion, or to grow between 12% and 16% compared with fourth quarter 2025.”
- “Operating income is expected to be between $28.5 billion and $33.5 billion, compared with $25.0 billion in fourth quarter 2025.”
- “We expect year-over-year advertising revenue to grow in the high teens in fourth quarter 2026.”
The midpoint of that operating income range is $31.0 billion on our arithmetic, 24% above the $25.0 billion Amazon states for the fourth quarter of 2025. Yahoo Finance’s fourth quarter revenue consensus of $244.3 billion, from 47 analysts, sits inside the guided range.
The stock
Amazon closed Thursday, October 29, 2026 at $243.79, down 4.25% from Wednesday’s close of $254.60. That decline happened before the release, which was filed at 16:05 ET. The close sits 15.1% below the 52-week high of $287.20.
At 17:40 ET the shares were quoted at $230.73 in the after-hours session, 5.36% below the close. That is a live after-hours quote, not a close, and not a settled reaction to the results. Prices are from Yahoo Finance.
What a Canadian holder is looking at
The results are reported entirely in US dollars, which matters in a Canadian account. Canadian holders can own Amazon through the CAD-hedged Amazon Canadian Depositary Receipt, which trades as AMZN on the TSX, while the US share trades as AMZN on Nasdaq: one ticker string, two different instruments. The hedge changes what the currency does to a Canadian holder’s return, and it is not free. Across the 14 US CDRs with a complete two-year record, we measured the cost of the hedge at between 2.11% and 2.85% a year, driven by the gap between Canadian and American short-term rates rather than by a fee schedule. That is our figure for the 14 receipts we measured rather than for the Amazon receipt alone, and our guide to Canadian Depositary Receipts explains how the structure works.
Three things pull in different directions here, all on the company’s own numbers: an operating business that beat management’s own guidance by $1.6 billion, though against a year-ago base that carried a $2.5 billion legal charge; a reported bottom line that went backwards because a $9.5 billion investment gain in that same base did not repeat; and capital expenditure running $42.4 billion ahead of operating cash flow.
Growth of 39% at AWS and a $42.4 billion free cash outflow are two readings of the same decision, and the fourth quarter guidance is the next place to check which reading is winning. The company figures above come from Amazon’s third quarter 2026 earnings release, filed with the SEC.
Disclaimer: The content on bestcanadianstocks.ca is for informational and entertainment purposes only and does not constitute financial advice. Past performance is not indicative of future results. Always consult a qualified financial advisor before making investment decisions. Company figures from Amazon’s Q3 2026 earnings release, filed with the SEC on October 29, 2026, and its fiscal 2025 Form 10-K. Consensus and prices from Yahoo Finance; the after-hours quote is timestamped in the piece.
