Amazon Stock Drops as Cloud Growth Surges and Holiday Outlook Stalls

Amazon posted third-quarter financial results that trailed Wall Street projections, triggering a more than 6% decline in the company's stock price during after-market trading on Wednesday. The Seattle-based retailer disclosed a cautious revenue outlook for the upcoming holiday season, which prompted investors to focus on the company's core retail performance rather than its high-growth cloud division.

The company generated net income of $20.69 billion, or $1.89 per share, for the three months ending Sept. 30. This figure compares to $21.19 billion, or $1.95 per share, recorded in the same period last year. Total sales rose to $201.94 billion from $180.17 billion in the prior year. According to FactSet data, analysts had projected earnings of $1.97 per share on revenue of $202.2 billion.

Amazon Web Services demonstrated strong momentum, with sales increasing 39.3% in the quarter. This growth rate accelerated from 37% in the previous quarter. Amazon stated that this represents the fastest pace of expansion for the cloud unit in nearly five years. Despite this performance, the market reaction centered on the slower growth expected in the company's primary retail and logistics operations.

For the fourth quarter, Amazon expects net sales to range between $240 billion and $247 billion. This represents a 12% to 16% increase from the same period last year. Analysts had anticipated quarterly sales of $244.16 billion. The company will provide further details during its earnings call on Thursday, where executives are expected to address holiday shopping trends.

Amazon announced it will hire 300,000 seasonal workers in the United States for the holiday period. This number is higher than the 250,000 temporary employees hired last year. The hiring push reflects the company's preparation for peak demand in its retail and logistics networks.

Investors remain focused on the company's capital allocation, particularly its spending on artificial intelligence infrastructure. CEO and President Andy Jassy told investors in July that capital spending, primarily for AI, will reach $220 billion. This amount covers robots, semiconductors, and satellites. The figure is up from a $200 billion plan announced in February and exceeds the $128 billion spent in all of last year. Jassy cited higher memory chip costs as the main driver for the increase and noted that even at this level, Amazon lacks sufficient capacity to meet all current demand.

The results come as other tech firms face scrutiny over AI expenditures. Alphabet reported weaker summer growth than anticipated late Wednesday, noting that free cash flow decreased after property and equipment purchases topped $51 billion. Alphabet's stock fell sharply Thursday, reflecting broader industry concerns regarding the costs of building data centers and purchasing AI chips.