Guotai Haitong released a research note stating that Amazon.com (AMZN.US) saw its AWS business continue high growth in 26Q3, with AI computing demand remaining strong, but retail and advertising growth slowed somewhat, capital expenditure kept expanding, and free cash flow came under pressure.
Looking ahead, AI demand is expected to continue supporting cloud business growth, but attention must still be paid to capital expenditure returns and supply-demand changes across the upstream computing power supply chain.
Guotai Haitong's main views are as follows: Amazon.com's computing power demand is robust, its AI investment is aggressive, and cash flow pressure is widening. In 26Q3, the company's overall results came in slightly below expectations. The cloud business grew well, with ample order backlog and high visibility; the company's commentary on AI investment was positive, its 2026 guidance was unchanged, and rapid growth is expected in 2027. However, quarterly capital expenditure in 2026 was volatile, and the risk of a front-loaded then back-loaded pattern across the third and fourth quarters along the supply chain needs attention. Looking to 2027, cash flow pressure will further intensify, and the company is expected to further expand its financing scale, requiring close monitoring of the macroeconomic interest rate environment and capital expenditure returns.
Amazon.com's 26Q3 revenue growth slowed, with lackluster net profit performance. In 26Q3 the company generated revenue of $201.9 billion, up 12% year on year, with diluted EPS of $1.89, both slightly below market expectations. Among segments, online store revenue grew about 2% year on year, while advertising revenue reached $19.6 billion, up 11% year on year. Due to the timing shift of Prime Day, which moved from the third quarter of the prior year to the second quarter this year, excluding this factor the company's third-quarter revenue growth rate would have been about 4 percentage points higher. Operating profit for the quarter reached $28.1 billion, with an operating margin of 13.9%; the year-on-year decline in net profit was mainly due to a one-off gain related to the Anthropic investment in the same period last year, resulting in a divergence between core operating performance and net profit growth. The company provided Q4 revenue and operating profit guidance, expecting revenue of $240 billion to $247 billion and operating profit of $28.5 billion to $33.5 billion, with the midpoints of both ranges slightly below the market consensus.
The AWS cloud business continued to grow, with high visibility on medium- to long-term demand. In 26Q3 AWS generated revenue of $46 billion, up 39.3% year on year. AWS Backlog reached $578 billion, up more than 100% year on year, reflecting strong cloud service demand and order backlog, with medium- to long-term visibility continuing to improve. Management expects AWS revenue growth to exceed 40% in both 2027 and 2028, and said newly added computing capacity can basically be absorbed by customers in a timely manner.
Capital expenditure continued to expand, pressuring free cash flow. Cash capital expenditure in 26Q3 was about $77.3 billion, above the Bloomberg consensus estimate of $58.8 billion, while the company maintained its 2026 capital expenditure guidance of about $220 billion unchanged, with spending pace possibly front-loaded then back-loaded across the third and fourth quarters; the company also expects 2027 capex to grow significantly further. Free cash flow in 26Q3 was -$33.5 billion, and with core business growth slightly below expectations, cash flow pressure continues to mount.
Risk warnings: AI demand and commercialization progress falling short of expectations, intensifying industry competition, supply chain risks, data center construction and delivery progress falling short of expectations, and financing risks.
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