Amazon (AMZN) Q3 2026 earnings call transcript

Thank you for standing by good day everyone and welcome to the amazon. com Q3 2026 financial results teleconference at this time all participants are in a listen-only mode after the presentation we will conduct a question and answer session today's call is being recorded for opening remarks I'll be turning the call over to the vice president of investor relations mr. Dave files thank you sir please go ahead hello and welcome to our Q3 2026 financial results conference call joining us today to answer your questions is Andy Jassy our CEO and Brian Alsoski our CFO as you listen to today's conference call we encourage you to have our press release in front of you which includes our financial results as well as metrics and commentary on the quarter please note unless otherwise stated all comparisons in this call will be against our results for the comparable period of 2025 our comments and responses to your questions reflect management views as of today October 29th 2026 only and will include forward-looking statements actual results may differ materially additional information about factors that could potentially impact our financial results is included in today's press release and our filings with the SEC including our most recent annual report on form 10k and subsequent filings during this call we discussed certain non-gap financial measures in our press release slides accompanying this webcast and our filings with the SEC each of which is posted on our IR website you will find additional disclosures regarding these non-gap measures including reconciliations of these measures with comparable gap measures our guidance incorporates the order trends that we've seen today and what we believe today to be appropriate assumptions our results are inherently unpredictable and may be materially affected by many factors including fluctuations in foreign exchange rates and energy prices changes in global economic and geopolitical conditions tariff and trade policies resource and supply volatility including for memory chips and customer demand and spending including the impact of recessionary fears inflation interest rates regional labor market constraints world events the rate of growth of the internet online commerce cloud services and new and emerging technologies and the various factors detailed in our filings with the SEC our guidance assumes among other things that we don't conclude any additional business acquisitions restructurings or legal settlements it's not possible to accurately predict demand for our goods and services and therefore our actual results could differ materially from our guidance and now I'll turn the call over to Andy thanks Dave we're reporting two hundred one point nine billion dollars in revenue up twelve percent year over year operating income was twenty eight point one billion dollars up sixty one percent year over year Q3 was another strong quarter for Amazon in AWS our plan is working despite lapping a comparable year over year period where we added a lot of capacity AWS grew 39.3 percent year over year accelerating for the sixth straight quarter our fastest growth in nearly five years backlog is five hundred seventy eight billion dollars growing triple digits year over year and well diversified we're installing an AI accelerator about every 14 seconds and almost as fast as we install capacity customers are gobbling it up our core compute and storage revenue grew at their fastest rates in several years our operating margins have long been strong on our core offering but rapidly improving on the AI side too well ahead of where they were on court a similar time of evolution even with heightened component costs like memory and significant depreciation from the CAPX we're investing we continue to accelerate our CAPX payback and have even more conviction than we already had that the investment we're making in AWS will yield a much larger revenue and free cash flow generating business than we would have imagined a couple years ago with strong return on invested capital we have a compelling flywheel spinning in AWS borrowing from Jim Collins flywheel definition and good to great where if you do a you almost can't help but do being if you do be you almost can't help but do see and so on in AWS having the leading functionality security and operational performance can't help but drive customers run their apps and store their data in AWS which can't help but drive AWS AI demand because customers prefer their production inference to be near the rest of their data and apps which can't help but drive core AWS demand because AI uses core for work like reinforcement learning post-trading tool usage which can't help but drive reinvestment back into our broader AWS functionality this is a different model and primarily hosting GPUs or renting short-term data center capacity this is a long-term platform strategy that broadly helps customers invent and evolve their customer experiences operate stably and build a reliable partnership they can grow for many years and it also yields very attractive long-term economics for us regardless of supply scarcity there are many examples that illustrate our progress made of us but I'll share a few on the core side it's important to remember that the vast majority of global IT spend about 85% is still on premises and we're in a 10 to 20 year cycle with that equation will flip to the cloud conventional wisdom has been that lynchpin workloads like mainframes or storage array networks would never move to the cloud but these workloads are moving as AWS has built unique cloud substitutes and AI-driven migration capabilities to make this transition much easier and enterprises get the benefits of less CapEx lower operating costs faster innovation better developer productivity and data accessibility to more easily leverage AI our core business has attractive margins because we've learned to run it very efficiently over the last 20 years as our core business grows we keep reinvesting in our core AI functionality for example as customers generate increasingly more data and seek to get value from it in analytics and AI the complexity of moving data between data stores and analytics engines is owner expense with our acquisition of Duck Labs DuckDB will become the universal SQL dialect of AWS storage analytics simplifying data processing with a modern analytics engine that is fast simple to use and ubiquitous and where customers will be able to write SQL queries once and then execute using any AWS analytic service for the first time in analytics customers will have zero migration or portability cost between query engines this is a big deal and you can imagine how it'll also help agents do efficient querying as well on the AI side we continue to expand the capabilities of our inference service Amazon bedrock and it's leading to remarkable growth with Fortune 500 companies spending nearly seven times more on bedrock year over year and total bedrock token volume growing nearly 17 times year over year bedrock is the fastest growing multi-billion dollar service native US's history we've recently added open AI models to bedrock and usage is growing quickly we also just added bedrock managed versions of Timmy GLM and SpaceX models you can't have a conversation about AI today without talking about security it's another reason customers keep choosing bedrock we've designed bedrock so customers data remains secure and private inputs and outputs are never shared with model providers or used to train-based models when customers tune a foundation model we create a private copy specifically for their use and data is fully encrypted both in transit and arrests as frontier models get more powerful they're servicing software vulnerabilities previously not found and it unprecedented rates we built AWS continuum to discover prioritize validate and remediate code vulnerabilities and machine speed it's already being used by customers like Capital One IBM in for Luminate and Robinhood in Q3 we announced that we'll integrate it into the tools where codes being written and Thoropics cloud code open AI's codecs and AWS's cure-up the interest in customers exceeds anything we've ever seen for a new security service agents continue to be deployed at accelerating rates many of which are being built on bedrock agent cores building blocks tens of thousands of customers currently use agent core deploying two times more agents with it in Q3 than the prior three quarters combined in addition to building their own purpose build agents most companies will also use turnkey agent services and we offer several the customers low cure for coding Amazon connects for contacts and our agents and Amazon transform for migrations they're all iterating quickly and picking up customer momentum as is Amazon quick our intelligent AI work companion which is growing very rapidly as large enterprises like Mondalees, Echo Star, 3M, Southwest Airlines and DXC are choosing quick because it's purpose built for work with no compromises on customer data finally our chips business continues to grow triple digit percentages year over year and revenue commitments for Graviton and training have each increased more than 20 times year over year AI continues to be a tailwind for Graviton because post-training reinforced learning and agent tool use is mostly done on CPUs versus AI accelerators and Graviton is the strongest CPU chip offering up to 30 to 40 percent better price performance than alternatives customers using our custom silicon save more than two billion dollars in Q3 alone and we just open source torch neurons as developers can run existing PyTorch code which most already use on training without rewriting a thing as we launch new generations of chips demand for prior generations remain strong after our launch of Graviton 5 backlog for prior generation Graviton instances still more than double quarter over quarter and short-term capacity for prior generation training instances so to premium compared to the first half of the year with training demands so strong customers continue encouraging us to make it available outside of AWS we intend to do so late in 2027 overall demand for AWS capacity remains exceptionally strong enterprise they're still very early in using inference of scale and yet inference already counts for well over half of AWS's AI revenue and growing and we have a lot of training revenue as well we still expect 2026 cache catbacks of approximately 220 billion dollars the majority for AWS and expect to spend meaningfully more in 2027 with a clear line of sight to attract financial returns as I laid out on our last call AWS is a 184 billion dollar annualized revenue run rate business yet the opportunity remains extraordinary with our continued pace of innovation new core and AI functionality enterprises wanting to run their core and AI workloads in AWS and the amount of capacity that we're adding each year we believe that AWS can grow north of 40% in each of 2027 and in 2028 and be a trillion dollar revenue business in the next five to ten years we're in the very early days of this inflection our strategy is working and I expect it will for the foreseeable future in stores I think some folks are sleeping a bit on how much progress that business has made and what it's become the last few years I'm not aware of another retail business approaching Amazon's revenue size hundreds of billions of dollars with double-digit operating margins inclusive of ads it's growing at this pace year to date units have grown nearly 15% year over year and that's not an enormous space having sold more than 30 billion items last year in absolute dollar terms we've added more than 90 billion dollars in gross sales in the trailing 12 months we're growing meaningfully faster than other retail competitors adding about double the gross sales per quarter than our next largest competitor in the US and consistently taking retail market segment share over the past few years our North American international segments have each expanded operating margins by nearly 10 percentage points which enables us to reinvest in making the customer experience even better remember it's still early the significant majority of retail nearly 80% currently occurs in physical stores that will eventually flip the commerce over time we're helping enable this shift by rapidly building out our efficient and speedy fulfillment network providing delightful customer experiences while driving significant free cash flow and return invested capital each of our priorities from faster delivery to cost to serve to groceries and pharmacy to AI shopping are force multipliers and we're firing on all cylinders our delivery speeds keep getting faster as we invest in our same day network as well as our Amazon now and Amazon Prime Air ultra-fast services we had our fastest Q3 ever globally and we delivered more than 1.5 billion items to prime customers same day or overnight in Q3 we're energized by the customer response to our rapid rollout of Amazon now around the world is now available in over 450 towns and cities and the number of items ordered through Amazon now up 10x year-of-a-year we're on track to reduce costs to serve per unit for the fourth consecutive year which enables us to continue meeting or beating competitors prices and cost effectively deliver a broad selection of fresh groceries in everyday essentials increasing speed is fueling our grocery business including perishables and everyday essentials and growth sales grew to nearly 250 billion dollars in the trailing 12 months in Q3 fresh groceries and everyday essentials grew about three times faster than the rest of our store representing about half of all units sold customers who shop perishables with same-day delivery by nearly seven times more everyday essential units than those who don't an active grocery customer shop nearly four times more non-grossery categories like home in apparel and spent over two times more on those categories compared to non-grossery customers Amazon pharmacy is also growing fast the number of customers using it is up over 60% year-of-a-year with growth accelerating each quarter through 2026 and repeat customers grew more than 50% year-of-a-year JD power recently ranked Amazon pharmacy the top mail order pharmacy for the third year in a row and we keep making it even better now offering three-hour prescription delivery more than 350 cities over 400 million customers have used Alexa for shopping our agentic shopping assistant in the last 12 months with customer interactions up 570% year-of-a-year US customers using Alexa for shopping are spending 50% more per order than those who don't it researches products compares options checks a full year of price history gets personalized gifts recommendations and tracks deals and price drops on customers behalf though we anticipate working with horizontal agents we believe Alexa for shopping is going to be the primary shopping agent customers use to shop Amazon having a shopping assistant constantly by your side as you browse get inspired have questions on product detail pages and that you can simply ask to buy something based on your prior purchases that already has your history your shipping address and payment info is uniquely helpful and convenient for customers moving to Amazon ads we generate 19.6 billion dollars of revenue in Q3 up 12% year-of-a-year though there were some timing anomalies in this past quarter we continue to be pleased with the overall momentum across our ad offerings I'll mention three items impacting the growth rates first we shifted prime day into Q2 for most countries moving significant sales and ad revenue that were in Q3 25 into Q2 26 a tailwind to our Q2 2026 rate and a headwind to Q3 2026 for advertising that was 850 basis points sequential impact to Q3 year-of-a-year growth second Q2 26 included the first season of MBA on prime which last year's Q2 didn't have well Q3 does not include any NBA it starts in Q4 and third in Q3 2025 we changed our search engine marketing programs to drive more traffic to search pages on Amazon it's a better experience for customers and we also monetize that traffic at a higher rate and helped accelerate advertising revenue growth starting a year ago and we started lapping that in Q3 we expect year-of-a-year growth will return to the high teams in Q4 an actual question is whether agent shopping from external horizontal agents is meaningfully impacting Amazon ads and the answer is no few customers are doing much shopping this way yet is the experience is still not great nor more convenient than coming to a retailer directly to research or one-click order there Q3 was chock full of innovation from our ad team that we expect to have impact in the coming months headline by Amazon ads agent which brings together a full advertising offering under a single AI first platform backed by trillions of shopping browsing and streaming signals it supports advertisers at every step with insights answers the ability to optimize and act on their behalf we also launched full funnel campaigns in Amazon ads agent bringing sponsored ads display video and streaming TV into a single campaign advertisers provide initial inputs including budget and duration and Amazon's AI plans executes and continually optimizes the rest we're continuing to see momentum in several other areas I'll mention just a few prime video has emerged as a significant business with a revenue run rate in the tens of billions of dollars and now profitable in its own right we have momentum with hit shows like Kerry the summer I turn pretty the boys off campus reach her and fallout and breakout movies like Project Hail Mary along with compelling live sports including Thursday night football off to its best start ever in 2026 NBA on Prime NASCAR the Masters and UEFA Champions League Soccer we recently launched our most powerful devices lineup yet with 34 new products across Echo Kindle Alexa tablets fire TV ring and B it's early but we're off to a very strong start and excited for more customers to get their hands on these as we head into the holidays and finally Amazon Leo remains on track to begin initial service this year we're heading into one of our most exciting stretches of the year with both reinventing the holidays and I want to thank our teammates for their hard work and invention to make customers lives better and easier every day what we're building in Amazon is unlike anything that's ever been seen before there has never been a business with a trillion dollars the annual revenue Amazon is on a path to have two of them in AWS and stores it's rare and we're energized by what they had over to you bright thank you Andy let's start with our top line financial results worldwide revenue was 201.9 billion dollars the 12% increase year-of-year and 13% increase year-of-year excluding the impact of foreign exchange worldwide operating income was 28.1 billion dollars with an operating margin of 13.9% which is our highest operating margin ever starting with our North American international segment results first let me remind you the prime base shifted this year with the sales event occurring in Q2 for most of our largest countries including the United States in 2025 prime day was entirely in Q3 excluding the impact this prime date time change third quarter 26 year year growth would be approximately 400 basis points higher in Q3 we saw strong customer engagement in a continuation of trends from the first half of the year in the North America segment third quarter revenue was 112.9 billion dollars an increase of 6% year-of-year international segment revenue was 43.1 billion dollars an increase of 8% year-of-year excluding the impact of foreign exchange worldwide paid units through 12% year-of-year prime remains a key pillar of our business hundreds of millions of prime members are responding to our combination of vast selection low prices and record delivery speeds over the past year monthly orders of fresh groceries placed by our prime members for three same-day delivery have more than tripled the shift to profitability North America segment operating income was 8.7 billion dollars with an operating margin of 7.7 percent international segment operating income was 1.6 billion dollars with an operating margin of 3.7 percent in our fulfillment network the team navigated higher transportation costs from fuel inflation and higher line haul rates even with these headwinds we still lowered our overall cost of serving Q3 to better inventory placement shorter shipping distances and package consolidation shipping cost increase 11% year-of-year versus a 12% increase in units excluding fuel and line haul inflation shipping cost grew 8% or approximately 400 basis points slower than unit growth robotics and AI are delivering measurable gains in productivity and employee safety which will expect to compound in the future in 2026 we doubled our fleet of robotic arms like Cardinal and Sparrow we're also developing robotics foundation models that enable faster programming and teach robots increasingly complex physical tasks with the goal of delivering useful robotics at scale looking ahead we see meaningful opportunities to improve productivity across our global filament network and lower our cost to serve while continuing to get products to customers faster our operating margin we fluctuate quarter to quarter but we're focused on sustained long-term improvement in our cost to serve per unit moving to our AWS segment revenue is $46 billion in grew 39.3 percent year per year driven by both core and AI services we added $3.8 billion in quarter over quarter revenue AWS now has an annualized revenue run rate of $184 billion customers continue to move to the cloud and scale their use of AWS core services and increasingly customers who want the full benefits of AI are accelerating their transition to the cloud we see a strong linkage between AI spend and growth in our revenue for core services as customers invest in AI we see a corresponding increase in core consumption when we expect that relationship to strengthen as more AI workloads move into production and drive additional demand for compute storage and networking AWS operating income was $17.8 billion with an operating margin of 38.7 percent reflecting strong growth and our focus on driving efficiencies our investments in custom chips and custom networking along with software and process improvements are helping us optimize capacity and build a more cost-efficient infrastructure as we've long said we expect AWS operating margins to fluctuate driven in part by the level of investment we're making at any point in time our AI offerings are gaining traction with customers with AI revenue growing triple digits year over year bedrock has been a significant growth driver now turning to our cash catbacks which is $75.9 billion in Q3 this primarily relates to AWS and AI as we invest the support strong customer demand we continue to make significant investments especially in AI as we believe it to be a massive opportunity with the potential to drive long-term revenue and free cash flow as well as return on invested capital I'll finish with our financial guidance for Q4 Q4 net sales were expected to be between 240 billion dollars and 247 billion dollars we estimate the year-of-a-year impact of changes in point exchange rates based on current rates which would expect to be a headwind of approximately 60 basis points in the quarter before operating income is expected to be between $28.5 billion and 33.5 billion dollars I'll mention one factor impacting our Q4 guidance Amazon Leo's commercial service is on track to begin initial service this year and we expect to begin capitalizing certain costs in Q1 of next year including production and launch costs this is later than I've been predicting in earlier earnings calls as a result we will continue to expense the majority of customers and and to support the millions of customers building with AWS I want to thank our teams across Amazon for their hard work and focus on customers our commitment to elevating the customer experience remains the only reliable way to create lasting value for our shareholders with that let's move on to your questions thank you at this time we will now open the call up for questions we ask each caller to please limit yourself to one question if you would like to ask the question please press star one on your keypad we ask that when you pose your question you pick up your hands that's the provide optimum sound quality once again to initiate a question please press star then one on your touch tone telephone at this time please hold what we pull for questions thank you and our first question comes from the line of Justin post with Bank of America please proceed with your question great thank you Annie can you just see the cloud business accelerate which is really nice but the quarter of a quarter growth slowed and I just wondering if there's any call outs there on the customer side or token costs or anything that kind of drove that and how do you think about the capacity ads in Q4 and then Brian maybe just any impact of fuel costs on your guidance in Q4 thank you yeah I'll start with the growth question we're really pleased with the growth you know 39.3 percent on a business it's got a $104 billion annual revenue run rate is quite unusual our fastest growth in about five years or six quarter consecutively of acceleration and you know we're adding we're adding quite a bit of capacity I think if you look at what's driving the growth right now it's a combination of a few things you know on the AI side the the unusual top to bottom stack functionality we have whether you're you're building your own model with SageMaker AI which is the easiest way to build your own model or you want to leverage one of the leading frontier models with high security and very strong price performance you know people can use bedrock whether you are building your own agents where we have capabilities like strands and agent core to build and to run those securely and scalably or you're going to use turnkey agents which most companies do if you just look across you know Kiro for coding and connect for call center and transform from migrations and quick which is growing incredibly fast as an AI companion at work people are adopting those very quickly and then you know we add a lot of capacity every quarter now the amount that we add every quarter is not equal and you know we're adding different amounts each quarter but if I look at how much we've added this year and what we have planned over the next I'll call it eight quarters or so you know which is about as far out as we get eight to ten quarters we have a lot of capacity coming as well and then you know I layer on top of that too just the impact of chips we're very well positioned for what's happening in AI because increasingly what you're finding right now is most customers every customer that runs the use AI at scale but particularly enterprises now as they're starting to deploy more inference into production they are very eager to save on price performance and training them with a meaningful advantage it has in price performance versus other alternatives it's very compelling to people and then as more and more people are using AI in a very broad way it drives a lot of the core in capabilities like reinforcement learning and post trading and tool calling and we have the leading CPU chip and graviton which is about 30 to 40 percent more price performance than other x86 providers so it's those things are really driving very significant growth the amount of capacity we add each quarter will vary but we're we're I mean at this scale to be projecting growing over 40 percent year over year each of 20 27 and 20 28 is pretty significant and the fact that we believe that this can be a trillion dollar revenue business in five to ten years it's it's an extraordinary unusual opportunity that we're very excited to be pursuing and Justin on your question about fuel and line hole inflation I would say I'm looking at it done an exact number for you but it is higher in Q4 than it was in Q3 if you remember we instituted fuel surcharge in the beginning of the year for FBA sellers that recovers some but not all of the costs that we're seeing on fuel for for those shipments and then the remaining part is on the retail inbound shipments and outbound shipments so it's in there it's a little bit higher than Q3. Thank you our next question comes from the line of Brian Noak with Morgan Stanley please proceed with your question.

Our next question comes in the line of Doug and myth with JP Morgan please proceed with your question.

Thank you and our final question comes from the line of Ross Sandler with Barclays please proceed with your question.

Thanks for joining us for the call today and for your questions a replay will be available on our investor relations website for at least three months we appreciate your interest in Amazon and look forward to speaking with you again next quarter