Amazon shares fall 6% as AI spending and slower e-commerce growth worry investors

Amazon.com Inc. shares dropped after the company reported greater capital spending than anticipated and the slowest growth in the core e-commerce business in three years.

Amazon said it spent more than $77 billion on property and equipment in the third quarter, far more than analysts’ estimates, while pursuing its effort to build data centers and fulfill demand for artificial intelligence services.

Sales in the holiday period will be $240 billion to $247 billion, the company said Thursday in a statement. Analysts were looking for $244.5 billion. Third-quarter revenue was also a little lower than anticipated, rising 12% to $201.9 billion.

The company’s spending led to a free cash outflow of $42.4 billion over the trailing 12 months.

E-commerce and advertising growth slow

Revenue at the cloud unit, Amazon Web Services, accelerated for the sixth straight quarter, contrasting with signs of sluggish growth in the company’s core businesses. Online sales gained just 2% to $68.5 billion, the lowest increase since early 2023, when Amazon was still working through the post-pandemic slump in online retail. Advertising sales, a business closely tied to the e-commerce franchise, rose 11%, the slowest rate since Amazon began breaking out such results in 2020.

John Tomlinson, an analyst with research firm M Science, said some of the relative weakness in retail is likely the result of Amazon’s decision to move its Prime Day sales to June this year, from July. Still ,“there’s a little bit of a crack in the armor here,” he said. “There’s a lot of focus on how much companies are spending on AI.”

AWS growth accelerates on AI demand

The AWS business has picked up this year, fueled by sales to artificial intelligence companies like OpenAI and Anthropic, which both rely in part on Amazon servers to power their models. Amazon has also added to its fleet of data centers, boosting its ability to provide computing power to businesses.

Chief Executive Officer Andy Jassy said the company’s cloud business was also showing strength beyond AI. The core AWS computing power and storage rental business grew at “their fastest rates in several years,” he said on a conference call with analysts.

The company said in July that it would likely spend $220 billion in capital expenditures in 2026, up from a prior forecast as a crunch in memory chips curbed supply. Amazon stuck to that forecast on Thursday.

Amazon shares fall 6% in extended trading

The shares fell about 6% in extended trading after closing at $243.79 in New York. The stock had gained 5.6% this year through Thursday’s close.

“AWS’s accelerating growth fell short of overblown expectations and the higher competitive bar set by Microsoft and Google,” said Sky Canaves, an analyst with Emarketer. “The cloud unit’s improving operating margin was one welcome signal, but it may not be sufficient to alleviate concerns about the sharp spike in capex spending and corresponding freefall of its free cash flow.”

Investors’ disappointment with Amazon’s results is similar to the reaction to rival Alphabet Inc.’s report on Wednesday. Alphabet reported search and advertising sales that reinforced investor concerns about AI’s threat to its core business, sending its shares down 13% at the close Thursday — the worst day ever for the stock. Also Wednesday, Microsoft Corp. reported a 48% gain in cloud revenue while keeping its capital expenditures in check, soothing investors concerned about lavish spending on AI. Microsoft shares fell less than 1% on Thursday.

Canaves said the Prime Day schedule move “doesn’t fully explain the weakness in online stores and advertising growth, suggesting that consumer pressure may be becoming more visible as shoppers pull back where they can, and this has a knock-on effect on advertisers’ willingness to spend.”

Holiday-quarter profit forecast

Third-quarter operating income increased to $17.8 billion, compared with $11.4 billion in the period a year ago. Amazon projected profit in the holiday quarter of $28.5 billion to $33.5 billion. Analysts, on average, estimated $33 billion.

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