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Will Strong AWS Performance Boost Amazon's Q3 Earnings Report?
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Key Takeaways
Amazon's Q3 results will spotlight AWS, with revenues expected to rise 37.5% year over year to $45.4B.
AWS' $496 billion backlog, AI chip adoption and expanded NVIDIA partnership reinforce its growth momentum.
AMZN's planned $220B in 2026 capex could pressure margins and free cash flow despite strong AWS demand.
Amazon (AMZN - Free Report) is set to report its third-quarter 2026 results on Oct. 29. The company’s cloud arm is likely to have remained the central catalyst, even as elevated capital outlays are expected to have weighed on near-term margins. Management’s guidance for third-quarter net sales of $197-$202 billion, accompanied by an approximately 80-basis-point foreign-exchange headwind and operating income of $22.5-$26.5 billion, frames a setup in which Amazon Web Services (“AWS”) execution carries outsized weight.
Click here to know how the company’s overall third-quarter performance is likely to have been.
AWS is likely to have sustained the accelerating trajectory established in the second quarter of 2026, when AWS revenues climbed 37% year over year to $42.2 billion, marking the fastest growth in 18 quarters at an annualized run rate of $169 billion. The Zacks Consensus Estimate for third-quarter AWS revenues is pegged at $45.4 billion, indicating 37.5% year-over-year growth.
The disclosed AWS backlog of $496 billion, growing at a triple-digit percentage rate year over year as of the end of the second quarter, provided multi-year demand visibility. Management’s commentary that capacity would still fall short of 2026 demand strengthens the case for sustained momentum. AWS’ AI and custom chips businesses, each surpassing a $25 billion run rate, signal competitive resilience against scaled cloud rivals Microsoft (MSFT - Free Report) Azure, Alphabet (GOOGL - Free Report) -owned Google Cloud and Oracle (ORCL - Free Report) . According to data from Synergy Research Group, Amazon, Microsoft and Alphabet held second-quarter 2026 worldwide cloud market shares of 28%, 20% and 15%, respectively. Microsoft and Alphabet are steadily narrowing the gap, applying sustained competitive pressure on AWS.
Strategic Partnerships of AWS in Q3
The third quarter brought several high-profile agreements that are likely to have shaped AWS’ near-term positioning. Most notably, AWS and NVIDIA expanded their partnership in August to deploy two million additional NVIDIA GPUs during 2027-2028. AWS also signed a multi-year strategic collaboration agreement with Cognition, expanded its partnership with Salesforce, and agreed to acquire DuckLabs. Additionally, AWS became the first cloud provider approved for NATO RESTRICTED workloads across all member nations, while Agentic Grid Planning, built with Duke Energy, broadened the customer base across defense and utilities.
Infrastructure, Silicon and AI Innovation in Q3
AWS’ third-quarter infrastructure investments are expected to have meaningfully shaped the operating cost base during the to-be-reported quarter. The planned investment of more than $5.3 billion in Saudi Arabia, where the first AWS region is slated to open in December 2026, is likely to have increased deployment-related expenses. Trainium adoption, backed by multi-year, multi-gigawatt commitments from Anthropic and OpenAI, supported AI workload absorption, while Annapurna Labs’ collaboration with NVIDIA on custom high-bandwidth memory is expected to strengthen future Trainium generations.
Investment Perspective
Heading into the third-quarter print, AWS demonstrates promising indicators across accelerating revenues, a $496 billion backlog and broadening AI-silicon adoption among frontier labs and large enterprises. Customer wins announced in the to-be-reported quarter add further diversification across regulated industries.
However, investors should note that approximately $220 billion in planned 2026 capital expenditures, raised from $200 billion partly due to higher memory costs, are likely to have pressured third-quarter margins and free cash flow, which had already turned to a trailing 12-month outflow of $7.6 billion. AWS operating margin, reported at 39.4% in the second quarter, benefited from a one-time energy-derivative gain that is excluded from third-quarter guidance and might have moderated sequentially. The Zacks Consensus Estimate for earnings per share has moved 3.1% higher over the past 30 days to $2.01, but investors might consider awaiting clarity on AI-capacity returns and capital efficiency before adding to positions ahead of this Zacks Rank #3 (Hold) company’s results. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.
View the Zacks #1 Rank List
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Will Strong AWS Performance Boost Amazon's Q3 Earnings Report?
Key Takeaways
Amazon (AMZN - Free Report) is set to report its third-quarter 2026 results on Oct. 29. The company’s cloud arm is likely to have remained the central catalyst, even as elevated capital outlays are expected to have weighed on near-term margins. Management’s guidance for third-quarter net sales of $197-$202 billion, accompanied by an approximately 80-basis-point foreign-exchange headwind and operating income of $22.5-$26.5 billion, frames a setup in which Amazon Web Services (“AWS”) execution carries outsized weight.
Click here to know how the company’s overall third-quarter performance is likely to have been.
Amazon.com, Inc. Price and EPS Surprise
Amazon.com, Inc. price-eps-surprise | Amazon.com, Inc. Quote
AWS Acceleration and Backlog Strength
AWS is likely to have sustained the accelerating trajectory established in the second quarter of 2026, when AWS revenues climbed 37% year over year to $42.2 billion, marking the fastest growth in 18 quarters at an annualized run rate of $169 billion. The Zacks Consensus Estimate for third-quarter AWS revenues is pegged at $45.4 billion, indicating 37.5% year-over-year growth.
The disclosed AWS backlog of $496 billion, growing at a triple-digit percentage rate year over year as of the end of the second quarter, provided multi-year demand visibility. Management’s commentary that capacity would still fall short of 2026 demand strengthens the case for sustained momentum. AWS’ AI and custom chips businesses, each surpassing a $25 billion run rate, signal competitive resilience against scaled cloud rivals Microsoft (MSFT - Free Report) Azure, Alphabet (GOOGL - Free Report) -owned Google Cloud and Oracle (ORCL - Free Report) . According to data from Synergy Research Group, Amazon, Microsoft and Alphabet held second-quarter 2026 worldwide cloud market shares of 28%, 20% and 15%, respectively. Microsoft and Alphabet are steadily narrowing the gap, applying sustained competitive pressure on AWS.
Strategic Partnerships of AWS in Q3
The third quarter brought several high-profile agreements that are likely to have shaped AWS’ near-term positioning. Most notably, AWS and NVIDIA expanded their partnership in August to deploy two million additional NVIDIA GPUs during 2027-2028. AWS also signed a multi-year strategic collaboration agreement with Cognition, expanded its partnership with Salesforce, and agreed to acquire DuckLabs. Additionally, AWS became the first cloud provider approved for NATO RESTRICTED workloads across all member nations, while Agentic Grid Planning, built with Duke Energy, broadened the customer base across defense and utilities.
Infrastructure, Silicon and AI Innovation in Q3
AWS’ third-quarter infrastructure investments are expected to have meaningfully shaped the operating cost base during the to-be-reported quarter. The planned investment of more than $5.3 billion in Saudi Arabia, where the first AWS region is slated to open in December 2026, is likely to have increased deployment-related expenses. Trainium adoption, backed by multi-year, multi-gigawatt commitments from Anthropic and OpenAI, supported AI workload absorption, while Annapurna Labs’ collaboration with NVIDIA on custom high-bandwidth memory is expected to strengthen future Trainium generations.
Investment Perspective
Heading into the third-quarter print, AWS demonstrates promising indicators across accelerating revenues, a $496 billion backlog and broadening AI-silicon adoption among frontier labs and large enterprises. Customer wins announced in the to-be-reported quarter add further diversification across regulated industries.
However, investors should note that approximately $220 billion in planned 2026 capital expenditures, raised from $200 billion partly due to higher memory costs, are likely to have pressured third-quarter margins and free cash flow, which had already turned to a trailing 12-month outflow of $7.6 billion. AWS operating margin, reported at 39.4% in the second quarter, benefited from a one-time energy-derivative gain that is excluded from third-quarter guidance and might have moderated sequentially. The Zacks Consensus Estimate for earnings per share has moved 3.1% higher over the past 30 days to $2.01, but investors might consider awaiting clarity on AI-capacity returns and capital efficiency before adding to positions ahead of this Zacks Rank #3 (Hold) company’s results. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.