Andy Jassy Just Announced Fantastic News for Amazon Stock Investors
Key Points
Amazon’s cloud business is looking stronger than ever.
The company is racing toward a milestone no corporation has ever achieved.
Amazon is a buy despite declining free cash flow.
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Amazon (NASDAQ:AMZN) is having a pretty good year. Shares are up 12% to date, as of writing. However, the company's recent third-quarter update was somewhat mixed. The market did not appreciate Amazon's massive spending and lower-than-expected fourth-quarter guidance, sending the stock down by as much as 7% post-earnings. Amazon has somewhat recovered since then, as Wall Street has had time to digest its earnings report.
And for investors focused on the long game, the company's update was full of bullish signs. Let's look deeper into it and pay particular attention to something Amazon's CEO, Andy Jassy, said.
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Amazon's cloud business continues to perform well
In the third quarter, Amazon posted net sales of $201.9 billion, up 12% year over year. The company's cloud segment, Amazon Web Services (AWS), continues to grow much faster than the rest of the business. AWS' third-quarter revenue was $46 billion, up 39.3% year over year. Amazon's AWS sales growth has accelerated for six consecutive quarters.
| Quarter | AWS net sales | Year-over-year growth |
|---|---|---|
| Q1 2025 | $29.3 billion | 16.9% |
| Q2 2025 | $30.9 billion | 17.5% |
| Q3 2025 | $33.0 billion | 20.2% |
| Q4 2025 | $35.6 billion | 24% |
| Q1 2026 | $37.6 billion | 28% |
| Q2 2026 | $42.2 billion | 36.7% |
| Q3 2026 | $46.0 billion | 39.3% |
AWS also helped drive operating margin gains in the third quarter. Amazon's operating income came in at $28.1 billion, up 61% year over year. AWS posted an operating income of $17.8 billion, more than the company's entire operating income of $17.4 billion in the third quarter of 2025. AWS' operating income grew by 56% year over year.
Amazon posted its best operating margin ever, at 13.9%, up from 9.7% in the year-ago period. However, Amazon posted net earnings per share of $1.89, down from the $1.95 recorded in the prior-year quarter. Some of that was due to the positive impact of equity investments in the third quarter of 2025, but there were other factors the market didn't like.
For instance, Amazon recorded negative free cash flow of $42.4 billion for the trailing 12 months ended Sept. 30, versus positive free cash flow of $14.8 billion in the comparable period of the previous fiscal year. Amazon is sacrificing free cash flow in the short term to invest in opportunities it thinks could be worth it in the next five to 10 years.
Two trillion-dollar businesses within a decade?
No company has ever achieved an annual revenue of $1 trillion. It's hard to find any public corporation that is closer to that goal than Amazon. But the tech leader doesn't have just $1 trillion in its sights. According to Amazon's CEO, Andy Jassy, both the company's stores and AWS businesses could generate $1 trillion in revenue each within the next decade.
What could this mean for Amazon? Note that the company expects revenue of $243.5 billion at the midpoint for the fourth quarter, implying total revenue of $827.6 billion for the full fiscal year 2026. If Amazon matches that guidance and ends up generating $2 trillion in revenue in 2036, the company's top line will grow at a compound annual rate of about 9.2% over the next decade.
In my view, that's well within the company's reach. In fact, Amazon could do even better than that. But the most important gains could be in the company's margins. Management noted that Amazon's growing reliance on custom AI chips helped boost margins in the third quarter.
Under a bullish scenario, Amazon could experience sustained demand for its cloud services over the long run, without having to invest as much in building the capacity required to meet demand as it is right now (data centers last for decades, although servers have about a five- to six-year useful life).
That, combined with increased margin gains from the company's custom AI chip efforts, could lead to faster average earnings growth over the medium term, especially when we also factor in that Amazon's e-commerce business is seeing stronger margins, partly thanks to AI-powered robots that are helping boost efficiency. Then there is Amazon's high-margin advertising business that could also help push margins higher over the long run.
There is the risk that the AI and cloud computing industries will slow. But in my view, Amazon's prospects are closer to the bullish scenario, which is why I think its shares are worth investing in today.
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Prosper Junior Bakiny has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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