Amazon’s third-quarter earnings report, due after market close today, is expected to draw attention to Amazon Web Services (AWS).
Investors will assess whether accelerating cloud growth can justify the company’s rising investment in artificial intelligence infrastructure.
The company has projected capital expenditure of about $220 billion for 2026, up from $132 billion last year.
Meanwhile, consensus estimates compiled by Seeking Alpha for hyperscaler capital expenditure indicate that spending across the sector will reach $762 billion in 2026, more than double the $362 billion recorded in 2025, before increasing to $1.3 trillion in 2027.
Amazon’s results will also offer insight into the performance of its retail operations, advertising business and cloud segment amid concerns about consumer spending, inflation and the profitability of AI investments.
Amazon stock AMZN was down 2.4% in premarket trading on Thursday.
AWS growth and margins remain central to the outlook
Analysts expect AWS revenue to increase 37% year over year to approximately $45 billion in the third quarter.
Visible Alpha consensus estimates put revenue at around $45.4 billion.
The cloud division’s operating margin is expected to reach 37.3%, compared with 35% projected last quarter and 34.2% in April 2026.
However, estimates vary widely, ranging from 31.4% to 41.1%, reflecting differing expectations for the profitability of AI services.
AWS has maintained its operating margin despite rising depreciation expenses associated with infrastructure investments.
Analysts expect the segment to generate about $17 billion in operating income, representing roughly two-thirds of Amazon’s total.
The company’s relationship with Anthropic will also remain under scrutiny.
Amazon is a competitor, distributor, customer, vendor, and shareholder in the AI startup, whose prospectus mentioned Amazon and AWS 166 times.
Anthropic’s $110 billion, 10-year AWS contract is a particular consideration as Amazon and other technology companies commit substantial resources to supporting AI businesses.
The ability of these companies to meet their future financial obligations could affect the cloud providers supporting them.
Retail growth and profitability face pressure
Amazon’s retail business is expected to report slower growth after its Prime Day shopping event was moved into the second quarter.
Analysts expect third-quarter retail sales growth to slow to 5%, following 15% growth in the previous quarter.
The timing shift is also expected to weigh on advertising revenue after an unusually strong second quarter.
Overall, Wall Street analysts expect Amazon to report $202 billion in quarterly sales, an increase of 12% year over year.
Visible Alpha consensus estimates for North American revenue have edged down to $113.8 billion.
Expectations for international online retail have also softened, potentially reflecting concerns about consumer spending amid inflation.
The North American retail operating margin is expected to reach 6.8% in the third quarter, although estimates for the third and fourth quarters have declined by approximately 50 basis points since last quarter.
Inflation and tariffs remain key considerations for retail revenue and profitability.
Rising AI expenditure puts cash flow under scrutiny
Amazon’s infrastructure spending remains a key concern as investment across the technology sector accelerates.
With two quarters of 2026 completed, the company’s projected annual capital expenditure of $220 billion implies approximately $120 billion in spending during the second half of the year.
The broader industry’s investment is also expected to outpace revenue growth in the near term, potentially putting pressure on free cash flow.
Amazon added $78 billion of debt to its balance sheet in the nine months ending in June and borrowed approximately $30 billion more in the third quarter.
Investors will therefore be watching the company’s fourth-quarter guidance and commentary on AI investments for indications of whether further increases in capital expenditure are likely.
Amazon shares have risen 12.3% year to date, broadly in line with the S&P 500.
The consensus price target of $336 implies a potential return of 35%, while valuation estimates stand at 19 times fiscal 2026 earnings and 23 times fiscal 2027 earnings.
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