Amazon Made a Record Profit Margin. So Why Did Its Shares Drop?

On 29 October 2026, Amazon reported results for the three months to 30 September. Sales were $201.9 billion, up 12%. Operating income, the profit from running the business before interest and tax, was $28.1 billion, up from $17.4 billion a year earlier. That is a 61% jump and a record operating margin of 13.9%.

Despite that, reports said the shares fell more than 8% in after-hours trading. The reasons are a slight miss on earnings per share, weaker advertising sales than analysts hoped, and a very large bill for building AI data centres.

What is Amazon Web Services, and why does it matter?

Most people know Amazon as a shop. But much of its profit comes from Amazon Web Services, or AWS, which rents computing power and storage to businesses over the internet. A bank, a streaming service or an AI start-up can use AWS instead of building its own computer rooms.

AWS sales rose 39% to $46.0 billion, the fastest growth in nearly five years. Its operating income was $17.8 billion, up from $11.4 billion. That means roughly 39 cents of every dollar of AWS sales turned into operating profit, far higher than the shop side of the business.

The ₦100 picture

To see how much AWS carries, think of Amazon's results as ₦100 (we use naira only as a counting unit):

• Of every ₦100 of sales, about ₦23 comes from AWS.
• Of every ₦100 of operating profit, about ₦63 comes from AWS.

So the cloud arm is under a quarter of the sales but nearly two-thirds of the profit. When AWS speeds up, Amazon's whole profit picture changes. When people worry about AWS spending, they are worrying about the part of the company that matters most.

If profit rose 61%, why did earnings per share fall?

This confuses many readers, so it is worth slowing down. Operating income is one measure. Net income, what is left after everything including investment gains and tax, was $20.7 billion, down 2% from $21.2 billion. Earnings per share were $1.89 against $1.95 a year earlier, and below the $1.96 analysts expected.

The reason is last year's comparison. In the same quarter of 2025, Amazon booked $9.5 billion of pre-tax gains on its investment in the AI company Anthropic. That one-off boosted last year's net income. Without it, this year's net income would look much stronger. So the business improved, but the headline number fell because of a high base.

Why did the shares fall anyway?

Three things, based on what was reported:

1. The EPS miss. Small, but it gave nervous investors a headline.
2. Advertising. Ad revenue was $19.6 billion, up 11%, but analysts had expected about $20.8 billion. Amazon said Prime Day, its big sales event, moved into the previous quarter in most large countries, which cut Q3 growth by about four percentage points. It expects advertising growth in the high teens next quarter.
3. The AI bill. This is the main concern.

The AI bill, explained

Amazon spent $77.3 billion on property and equipment in this one quarter, mostly data centres and chips for AI. Over the last twelve months it spent $215.2 billion, and it expects about $220 billion for the full year 2026.

Now look at free cash flow, the cash left after paying for that equipment. Over the last twelve months Amazon generated $168.3 billion from operations, up 29%. But after the building spree, free cash flow was an outflow of $42.4 billion. A year earlier it was an inflow of $14.8 billion.

In plain terms: the business earns a lot, but it is spending even more than it earns on infrastructure. Amazon is betting that demand for AI computing will fill those data centres, and the 39% AWS growth suggests demand is strong right now. The worry is what happens if demand slows before the buildings are paid for.

What does Amazon say next quarter looks like?

Amazon guided to fourth-quarter sales of $240 billion to $247 billion, up 12% to 16%, and operating income of $28.5 billion to $33.5 billion, compared with $25.0 billion a year earlier. Those are healthy numbers. Its guidance excludes one-off items such as acquisitions and legal settlements.

What to watch

This section is Rainingmoney's reading.

• AWS growth versus spending. If AWS keeps growing near 40%, the investment looks justified. If it slows while capital spending rises, pressure will build.
• Free cash flow. Watch whether the outflow shrinks or widens next quarter.
• Advertising. The Prime Day explanation is plausible, but the fourth quarter will show whether growth truly rebounds.
• Other big spenders. Reports linked Amazon's fall to a sell-off in Alphabet earlier in the week. Investors seem to be judging all the big AI spenders together.

Why Nigerian readers should care

Many Nigerians hold Amazon through US stock apps, funds or retirement products tied to global indices. A drop of this size in one of the world's largest companies affects those holdings. It also matters beyond shares: the cost and availability of cloud computing influences what African start-ups pay to build products.

What we do not know

Reports did not give a figure for AWS's order backlog, and we have not seen Amazon's own commentary beyond its published results. We cannot say how long the after-hours fall lasted. Prices can move sharply by the next morning, in either direction.