Amazon Earnings Review | The AWS Engine Is Roaring Again
Amazon reported third-quarter results that beat market expectations, thanks to AWS growth accelerating to 20%, the largest increase in three years, which drove the stock to jump as much as 13% after hours. The company is fully ramping up AI infrastructure investment, projecting 2025 capital expenditures of about $125 billion, above analysts' forecast of $118.76 billion, with capex set to increase further in 2026. It also said it has strengthened its partnership with Anthropic through the $11 billion “Rainier Program,” and that demand for its in-house AI chips exceeds supply.
Core Financial Indicators
Net Revenue: Third-quarter net sales rose 13% to $180.2 billion, above $158.9 billion in Q3 2024 and the $177.82 billion analysts expected. Excluding a $1.5 billion favorable impact from foreign-exchange movements, year-over-year growth would be 12%.
Operating income: Third-quarter operating income was $17.4 billion, flat with $17.4 billion in Q3 2024. Q3 2025 operating income includes two special charges—a $2.5 billion expense related to a legal settlement with the Federal Trade Commission (FTC) and an estimated $1.8 billion in severance costs primarily tied to planned job reductions. Excluding these charges, operating income would be $21.7 billion.
Net income & EPS: Third-quarter net income increased to $21.2 billion, with earnings per share (EPS) of $1.95, above the $1.58 expected by analysts. Q3 2024 net income was $15.3 billion, with EPS of $1.43.
Business Segment Overview
North America: Sales rose 11% to $106.3 billion. Operating income was $4.8 billion, down from $5.7 billion in Q3 2024. Excluding the $2.5 billion FTC settlement charge, operating income would have been $7.3 billion.
International: Sales rose 14% to $40.9 billion; excluding currency effects, growth was 10%. Operating income was $1.2 billion, down from $1.3 billion in Q3 2024.
AWS: Revenue grew by 20% to $33.0 billion, beating analysts' estimate of $32.42 billion and 18.1% growth. AWS operating income rose by 9% year over year to $11.4 billion, also beating expectations, and accounted for about two-thirds of Amazon's total operating income.
However, this means AWS's profit margin is declining, as depreciation from increased capital expenditures is growing faster than revenue.
Earnings Guidance
For the fourth quarter ending in December, the company projects net sales of $206 billion to $213 billion, representing 10%–13% year-over-year growth versus Q4 2024. The midpoint, $209.5 billion, exceeds the $208.45 billion consensus estimate. Operating income is expected to be $21–$26 billion, compared with $21.2 billion in Q4 2024.
Summary
Overall, the earnings report exceeds expectations. The variables that need to be focused on subsequently are still cloud services capacity ramp-up, and pace of CapEx.
The stock price increased by more than 13% after the earnings release.
~Valuation:
Amazon's PE ratio currently exceeds 33 times.
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