Amazon Stock Is Crashing - Here's Why The Market Hated Earnings

Amazon stock is down 7% in after hours trading right now at the time of recording this video after they posted their Q3 earnings results and this is even after the stock fell 4% on the day today. Service Now stock also fell 26% today. Forinet is down 20%. Intel is down 17% in after hours right now and Reddit is also down 16% in after hours after being down 4% today. So this is another earning season where stocks are getting nuked across the board if their earnings are just slightly off. And what's interesting is as we're going to see Amazon's earnings weren't even bad. They actually beat their own guidance. So, this is a very weird time in the market where it's just extremely volatile and investors seem like they are on edge. However, as I have been telling my Patreon and website communities, I do believe that this volatility is not entirely rational. And if you are someone who can control your emotions and think long-term, then I think this volatility is where you can actually find the most opportunity. So, full disclosure, I have added to my Amazon position in after hours trading after going through the earnings report, and Amazon remains the second largest position in my portfolio. And as a long-term investor, I am pretty surprised that Amazon stock is getting hit so hard right now. But also, just like with Google, as we discussed yesterday in that video, by the way, thank you everyone for tuning in. That video went viral and popped off. But just like with Google's earnings, there is a lot of noise in Amazon's report and there's a lot of things that Wall Street could be nitpicky about and point to and say this is bad. And I think that's kind of the narrative that we're going to see going forward in the short term here. So with that being said, I'm going to stop rambling and let's now get into our Daniel Prong slideshow of Amazon's earnings results. All right, so let's start from the top here. And we can see that Amazon had operating income of 28.1 billion and an operating margin of 13.9%. Which is the highest operating margin that Amazon has ever had. So Amazon's margins are continuing to expand. AWS revenue grew 39.3% which means that AWS is continuing to accelerate and it is now doing $184 billion in annualized revenue. This is a business doing almost $200 billion in revenue, growing 40% year-over-year. That is ridiculous. However, we can see that overall sales only grew 12% and 13% on an FX neutral basis. This is because Prime Day was in the third quarter last year versus being in the second quarter this year, which means that there was a headwind to overall revenue growth this quarter because last year's comps were quite a bit better. On a like forlike basis, Amazon says that revenue would have grown another 4% to 17% on an FX neutral basis. So, Amazon is still growing quite quickly, but again, as I said, this is going to be a little bit of a more noisy quarter. Moving on, we can see that North American sales are up 6%, international sales are up 5% and again AWS is up 39% to $46 billion in revenue for this quarter. North America operating income came in at 8.7 billion, up 81%. International operating income is up 30% and then AWS operating income is up 56%. So, Amazon's margins, as you can see, are expanding at AWS and expanding significantly in its North American business. Moving on, though, we can see that operating cash flow in the trailing 12 months is now at 168.3 billion, up 29% year-over-year. So, Amazon's operating profits are continuing to grow very well. For Amazon, especially right now, I believe that earnings and free cash flow are quite literally meaningless. So, I'm not even going to discuss them. I think the number one thing to focus on as a long-term investor for Amazon is its operating profits and cash flows growing. All right, moving on to the next screenshot. This is a little bit of a Easter egg in the earnings report that I didn't see a lot of people talking about online so far. Here, Amazon is projecting that AWS will have revenue growth of 40% in 2027 and in 2028. Now, AWS is on track to be doing $200 billion in annualized revenue by the end of 2026, which means that AWS would be doing about $280 billion of revenue next year, then $392 billion in revenue for 2028. Or in other words, Amazon believes that AWS's revenue could double over the next two years. AWS also currently has an operating margin of 37%. Which means that it could be doing $145 billion of operating income in the year of 2028. And as AWS continues to make up more and more of Amazon's revenue, then Amazon's overall margins will continue to expand as well. Another thing that they said here is that there has never been a trillionoll revenue business and that Amazon may have two of them over the next 5 to 10 years. Which basically means that their online sales business, their e-commerce business could be doing over a trillion dollars of revenue over the next decade along with AWS. They believe that AWS could reach a trillion dollar of revenue over the next decade. As someone who plans to hold Amazon for the next decade, thinking just about AWS doing a trillion dollar in revenue by 2036 is ridiculous. That makes Amazon look like an absolute steal today. So, while the market is freaking out over an earnings per share miss or the advertising business not growing as quickly this quarter, when I think long term, this thing still looks like it is a steal today. And I am pretty shocked that the market is so willing to just tank the stock so quickly. But let's continue on through the slideshow. All right, this next screenshot shows us the guidance for the fourth quarter. And Amazon is expecting 240 to 247 billion in revenue, which is growth of 12 to 16%. Advertising revenue also only grew 12% this quarter, which was lower due to Prime Day again being in the third quarter of last year and advertisers spending so much money during Prime Day. So, the advertising business saw a tremendous headwind for overall year-over-year growth rates this quarter specifically. Then, Amazon says that advertising revenue is expected to grow in the high teens into the end of the year. So advertising should give us a much more real comparison in the fourth quarter. Operating income is expected to be between 28.5 and 33.5 billion which is about a 12 to 13.5% margin. So operating income is expected to be pretty strong heading into the end of the year. And Amazon maintained their capex guidance of 220 billion for this year. So they did not raise their capex guide for 2026. And overall, it seems like Amazon is still expecting strong growth heading into the end of the year, which is good to see. All right, now let's move on to Amazon's cash flow statement. And one thing that is interesting is in the trailing 12 months, Amazon has seen its stock-based compensation decline by about $200 million. And I believe that Amazon is the only hyperscaler that is seeing its stock-based compensation actually start to come down. Moving on to operating cash flow though. Operating cash flow was 42.4 billion this quarter, up 19% year-over-year. Operating cash flow is up 34% year-to date and as we saw earlier, 29% in the trailing 12 months. However, Amazon's capex is exploding though and Amazon is very free cash flow negative. Just this quarter, they lost $35 billion of free cash flow and they raised $48 billion of debt. Year-to- date, they have lost 62 billion of free cash flow and raised 115 billion of debt. And in the trailing 12 months, they have had -47 billion of free cash flow and have raised 130 billion of debt. I believe this shows us that Amazon is the most aggressive investor out of the hyperscalers and they are the company willing to go the most negative in free cash flow which I actually do kind of like as long as the opportunity for building out AI infrastructure does exist and will produce a high ROI. If it does then Amazon stands to actually make the most money and shareholder returns over the longer term because again they are the company going the most aggressive to capture this opportunity. But since Amazon is raising so much debt right now, I thought that it was worth taking a quick look at their balance sheet. And Amazon still has about as many current assets as current liabilities, which means that the business is still very liquid. Also, when you factor in that they're generating almost 200 billion of operating cash flow on top of them having a current ratio of 1. Long-term debt is also only 173 billion. And I know that I say it's only 173 billion, but for Amazon and with this company's level of profits, it really isn't that much. So, in my opinion, the debt is not an issue for Amazon. But it's obviously not sustainable to raise a hundred billion in debt every single year forever. But it is making the market more cautious and analysts are more concerned because if Amazon is taking on debt to finance the AI buildout and then the AI buildout does not produce positive ROI then Amazon is left with a lot of debt that is essentially not producing an actual profit for the company. So it's not ideal to see for analysts but if there is a positive ROI then Amazon stands to benefit tremendously. All right, moving on to the next screenshot. This is my favorite table from Amazon's earnings report every single quarter. It shows us all of their different business segments and the growth rates on a year-over-year basis. So, starting from the top, we can see that online stores grew 2% year-over-year. Physical stores also grew 2%. Third party seller services revenue grew 10%, advertising grew 12%, and you can see that there was a huge deceleration here. In the second quarter, advertising saw 26% revenue growth. So decelerating to 12% is not what the market wanted to see. However, we can then see that AWS accelerated to 39% growth and it sounds like it will continue to accelerate into 2027. Now straight up these numbers look bad, but again you have to realize that their biggest shopping event happened in Q3 of last year and they are still growing by over 10% in many of their larger businesses despite having that. But as I said earlier, Q4 will be a better reflection of Amazon's actual growth. And despite this, AWS is still killing it. All right, let's now move on to the charts that I update every single quarter. And I actually shared these charts in my Google video yesterday, but now we have Amazon's data, so I included Amazon in them. A few of you also told me yesterday that Meta and Google's colors were too similar, so I changed Meta to green in these charts. But what this first chart is showing us is the net revenue added to advertising for every quarter for Amazon, Meta, and Google. And here we can see that Amazon did in fact have a weak quarter, adding $1.9 billion in net revenue to their advertising business, just like Google also had a weaker quarter. This chart also shows us that Meta is really winning in advertising. Both Amazon and Google are making Meta's advertising business and Q3 report look even better. This next chart is the trailing 12 months numbers. And here we can see that Meta is about to pass Google for advertising revenue as I shared yesterday. And Amazon is still growing strong and very consistently, but it's obviously a much smaller business. This next chart shows us the total growth to the advertising businesses since the second quarter of 2021 when I started tracking all of these metrics. And you can see that Amazon's total growth has very clearly decelerated this quarter along with Google. Meta is the only one still maintaining very fast growth rates. Since the second quarter of 2021 though, Amazon's advertising business has grown the most at 200% now, but obviously it is easier to grow off of a much smaller base. So here is the summary that Claude spat out for me because it gives me a summary every single quarter. And here it says that Amazon had the weakest advertising quarter since 2023. But it does say that this was because in Q3 of 2025, Amazon had its first big post prime video ads quarter. And again, they did have their Prime Day in the third quarter last year. Meta is the only advertising business that is still accelerating. And Claude believes that this is the clearest evidence that Meta's AI investments are in fact paying off and expanding the business. All right, now we're going to move on to some charts from Stockholm. And this first one is AWS's revenue growth rates. And you can see that AWS revenue growth rates did accelerate to that 39.3%. And this is the highest revenue growth rate since the first quarter of 2022 when it grew by 39.5%. And I am expecting AWS's growth rates to continue accelerating. This next chart simply shows us AWS's revenue growth. And you can see how quickly the business is scaling right now. This next chart is the quarterly advertising revenue growth rates. And you can see that this quarter the advertising revenue growth rate fell off of a freaking cliff. And the market really really did not like this. It was definitely a weaker quarter for advertising, but next quarter we should see a good bump and the number should get back up to about 18 to 19% in my opinion. I also think that the weaker advertising quarter is playing into the fears around AI agents disrupting Amazon's advertising business. And I think that this is something that you're going to start to hear more of over the next about 3 months until Amazon reports again. So yeah, expect the bears to come out and really hound this number right here. Let's now quickly discuss the highlights that I heard from the conference call. Starting from the top, an analyst asked about quarterover AWS revenue growth being slower. And Andy Jasse said that this is because of the timing for AWS capacity coming online. It really just depends when capacity is added and it is not a reflection of the overall demand. AWS also has good visibility into 2027 and 2028 revenue numbers because the capacity is reserved already. So this is basically guaranteed revenue coming in which is why he gave us the 40% year-over-year growth rates for the next 2 years. However, Amazon would not give guidance on AWS margins and analysts did not seem to like that. Analysts also asked when Amazon will start selling Tranium externally and Amazon said it will start in late 2027. They did say that Tranium sales would accelerate the growth today immediately, but internally they are needed and Tranium will produce cash within AWS for the next 5 to 6 years. AWS's backlog also was reported at 578 billion, up 82 billion quarter-over-arter and 289% year-over-year. Core compute and storage revenue grew the fastest in several years, and demand overall for AI compute still far outstrips supply. So, Amazon is leaving revenue on the table just like Google Cloud and Microsoft are. They then said that Bedrock is the fastest growing multibillion dollar service in AWS's history and that Fortune 500 companies are spending seven times more on Bedrock year-over-year. The chips business is also still growing triple digits and revenue commitments are up 20x year-over-year. So, Amazon's chips business is continuing to explode. They also shared that advertising revenue would have had another 8.5% growth rate on a like- forlike basis if Amazon Prime did not happen in the third quarter last year. Which means that Amazon's advertising revenue would have grown over 20% this quarter. Again, if it was a like for-like basis. And then lastly, Jazzy said that agents are not impacting advertising in any way. And Prime Video is doing tens of billions of advertising revenue. Amazon has now done 168.3 billion and trailing 12 months operating cash flow and it has a $2.53 trillion market cap in after hours trading. Now this means that it is trading right at 15 times operating cash flows. Now if we go take a look at Amazon's historical price to operating cash flow all the way back to 2008, you can see that the median has been 25.8. So 15 times operating cash flow is very low for Amazon relative to how this business has been historically valued, especially when you consider that the business's margins are actually expanding and hitting record highs right now. Now, what's also interesting is you have to go all the way back to January of 2009 to see Amazon at a lower price to operating cash flow than 15. Even right here in February of 2009, it got up to 15.6. And again, right now in after hours, it is trading for about 15, right at 15. The lowest it has been recently was about 15.5 in the market correction that happened in March of this year. And now it is even lower than this. So, Amazon is quite literally at the lowest price to operating cash flow that the stock has traded for since 2009, right near the financial crisis. And this is one of the reasons why I think that Amazon is looking so cheap in the market right now. Additionally, I have updated my DCFS for Amazon. And as always, you guys know I like to use operating cash flow for Amazon. And I have put in their updated TTM number here. And over the next three years, if Amazon can continue to grow its operating cash flows by 20% per year, which I think they will, especially if AWS continues to grow by 40% per year, and trade for a 17 price to operating cash flow multiple, which does factor in some multiple expansion, but is still well below the company's long-term averages and medians, then the share price could still compound by about 21.6% annually over the next 3 years. And I do not think that this is a bullish DCF right here. I think that this is a very conservative DCF. For example, analysts have Amazon growing its operating cash flows by 28% annually over the next 3 years. And if its multiple can even get back up to 19, then the stock could now produce an over 30% compounded annual growth rate from its share price right now. Even with what I think is a very conservative DCF, I still get an over 20% compounded annual growth rate to Amazon share price over the next 3 years. And this is why I am continuing to buy Amazon shares and why it is the second largest position in my portfolio because I ultimately believe that Amazon is going to blow these numbers out of the water. And as their ROI on their AI capex does prove to be paying off, then I believe that their multiple will reexpand. And I would not be surprised to see Amazon over a 20 price to operating cash flow again at some point in the future. And if they can continue to grow their operating cash flows tremendously by the time that happens, then I believe that Amazon is going to produce a lot of shareholder returns. And that's really my thesis for Amazon right now. All right, let's now finish up the video with my final thoughts and conclusions. Starting from the top, this was a more noisy quarter due to the timing of Prime Day in 2025. As I have said many times, this made the year-over-year numbers for the retail and advertising businesses look weak, but in reality, they were still pretty good. Advertising would have grown over 20% and is still projected to grow in the high teens for the fourth quarter. Q4 overall will give us a better and more clean year-over-year comparison to Amazon's businesses and its growth rates. AWS is still growing tremendously and is expected to grow 40% in both 2027 and 2028, which will lead to AWS doing nearly $400 billion in revenue, and it will continue expanding Amazon's margins overall. Amazon believes it will have two $1 trillion businesses over the next decade. The chips businesses are growing triple digits while doing tens of billions in revenue, too. Graviton is the fastest growing business ever within AWS. Overall AWS demand is still far greater than supply. Amazon is now trading for its lowest price to operating cash flow since 2009. While the margins are hitting an all-time high and AWS is accelerating strongly. In my conservative DCFS, I now get 20% plus compounded annual growth rates on Amazon stock over the next 3 years. Amazon is very free cash flow negative though right now and is taking on a lot of debt to continue funding its AI buildout and the market clearly does not like this. Amazon does still have a very strong balance sheet but this is unsustainable. That is the fact of the matter. However, if the ROI on capex proves to be high then Amazon will produce tremendous shareholder value and ultimately I added to my Amazon position after the earnings report. But with all that being said, that is going to wrap up today's video. And let me know what you think of Amazon's earnings results down in the comments section below and also what you think about the market right now with stocks across the board getting absolutely nuked because I obviously thought that this was a pretty good report from Amazon. Not the best one, but I do not think that the stock deserves to be down so much in after hours trading and that is why I bought some more. Also, if you enjoyed this video, then please remember to leave a like on it. And if you want to see more earnings analysis like this in the future, then make sure to subscribe to my channel because I have a lot more coming. There's a lot that we got to discuss and it would be cool if you guys stuck around. But as always, thank you so much for tuning in. I truly do appreciate it and I hope to see you again in my next