Amazon stock falls on high AI costs

Amazon’s stock price plummeted after the company reported a massive cash outlay in the third quarter, which led to a sharp decline in its shares. The company also signaled higher capital expenditures for the next year, in addition to the already substantial sum planned for 2026.

Amazon Web Services, the company’s profitable cloud computing business, continued to see accelerated growth, but Amazon’s aggressive spending on artificial intelligence overshadowed the broader growth that investors typically look for.

Amazon expects revenue between $240.0 billion and $247.0 billion in the fourth quarter, which includes the forecast of $244.51 billion by LSEG, although the average of $243.5 billion was slightly lower.

Investors were disappointed with the company, leading to a 7% decline in the stock price in after-hours trading, and a 4.3% decline during regular trading, closing at $243.79.

Tech Stocks Plunge

The decline reflected the broader sell-off of tech stocks on Thursday, after Intel warned of weakening sales of personal computers in the first half of next year, which led to a 23% decline in its stock price in after-hours trading. Alphabet’s stock also plummeted 12% during regular trading, its largest single-day percentage decline in history.

Amazon reported that it had spent $42.4 billion in the last 12 months, thanks to capital expenditures of $77.26 billion, which was around $20 billion above forecasts, according to data compiled by LSEG. They spent $7.6 billion in the previous quarter and generated $14.8 billion in the third quarter of last year.

Like its competitors, Amazon is making massive investments in developing AI software and infrastructure, with forecasted capital expenditures of $220 billion this year. Amazon and Alphabet, the parent company of Google, maintained their spending forecasts, although Microsoft reduced its forecast from $175 billion to $170 billion on Wednesday.

Jassy attempted to reassure investors after the results were announced, saying that Amazon’s strategy is working and that he expects it to continue in the foreseeable future.

AWS Growth Surges

Jassy stated that Amazon Web Services could reach $1 trillion in revenue within just five years, adding that investments in AWS functionality and infrastructure are paying off. He also said that he doesn’t know of any other retail business that comes close to Amazon’s revenue size.

Amazon Web Services revenue increased 39% to $46 billion in the third quarter, compared to analyst forecasts of 38.2% growth to $45.61 billion, according to data compiled by LSEG. The revenue jumped 37% in the second quarter.

Advertising sales were another disappointment, increasing only 12% to $19.6 billion compared to the same period last year, which was below LSEG’s forecast of 18% growth—the first time in seven quarters that they did not meet expectations. The results showed significantly slower growth compared to 26% in the second quarter or 22% in the third quarter of 2025.

Despite this, Jassy said he was “pleased” with ad sales and noted that the shift of the promotional event Prime Day to the second quarter had an impact on overall ad revenue for the period.

Jassy dismissed concerns that AI-powered shopping agents, which automate consumer purchases, had affected ad sales.

Cloud Services Take Center

While retail sales make up the majority of Amazon’s revenue, investor focus has sharply shifted toward its cloud services business, Amazon Web Services, as the tech company invests heavily in building data centers and competing in the global AI race. The cloud division posted its fastest growth in nearly five years. In its e-commerce business, Amazon is rolling out faster global delivery services and expanding its reach to more rural areas in the U.S. to attract additional customers.