AWS Is on Fire, But Here’s Why Amazon Stock Isn’t Ready to Fly

Amazon (AMZN) recently delivered a strong third-quarter performance, with its cloud computing business, Amazon Web Services (AWS), continuing to show impressive growth. Demand for cloud services and AI infrastructure remains strong, giving AWS a significant opportunity to expand further.

The AWS segment’s revenue jumped 39.3%, marking its sixth consecutive quarter of accelerating growth. AWS’ annualized revenue run rate has reached $184 billion, while its backlog climbed to $578 billion, recording triple-digit year-over-year (YoY) growth and reflecting a broad-based pipeline of future demand. Momentum is also building across its artificial intelligence (AI) portfolio, with AI-related revenue increasing at a triple-digit rate.

However, despite AWS firing on all cylinders and today's short-term price chart spike, Amazon's stock has struggled to gain traction and isn’t ready for a big, and sustainable, move.

The disconnect between AWS's strong performance and Amazon's relatively weak stock movement comes down to two major concerns, including rising capital expenditure and slower advertising revenue growth in Q3.

While AMZN is expected to benefit from its massive investments in AI and cloud infrastructure in the long run, investors remain focused on the scale of spending and how quickly these investments will translate into higher earnings and free cash flow.

Amazon's $220 Billion Spending Plan Is Making Investors Cautious

Amazon spent $75.9 billion on capital expenditure in the third quarter, with much of the spending going toward AWS and AI infrastructure to meet growing customer demand. The company expects capital expenditure to reach $220 billion in 2026, highlighting just how aggressively it plans to invest in its cloud and AI businesses.

This spending reflects a solid growth opportunity. Demand for AI computing capacity is rising, and Amazon wants to ensure AWS has the infrastructure needed to capture it. Management remains confident that these investments will pay off, pointing to improving capex returns and the potential to build a much larger business capable of generating significant revenue and free cash flow.

However, investors are looking beyond the growth story. Spending $220 billion in a single year is a substantial commitment, and the market wants to see tangible returns from these investments.

This is one reason Amazon's stock has struggled to break out despite strong AWS growth. Overall, concerns about rising capital requirements could continue to weigh on the stock.

Advertising Growth Slowed in Q3

Amazon's advertising business generated $19.6 billion in revenue in the third quarter, up 12% YoY. That was a considerable slowdown from the 26% growth reported in the second quarter, when advertising revenue reached $19.8 billion.

The slowdown initially looks concerning, particularly because advertising is an important source of revenue and profitability for Amazon. However, management explained that several factors affected the quarterly comparison.

Amazon moved the shopping event into the second quarter across most countries, shifting a meaningful amount of sales and advertising activity into Q2 2026. According to management, this change created an approximately 850-basis-point headwind to Q3 advertising growth.

Moreover, the second quarter benefited from the first season of NBA coverage on Prime, which provided additional advertising opportunities compared with the previous year.

Management expects advertising revenue growth to return to the high teens in Q4. This suggests some of the Q3 slowdown was due to timing differences and tougher comparisons rather than a broader weakness in advertising demand.

Still, the decline in growth from 26% in Q2 to 12% in Q3 is worth watching. Even if the company delivers the expected recovery in Q4, investors will want to see whether advertising can maintain stronger growth in the coming quarters.

Amazon Stock Needs More Than AWS Growth to Take Off

The solid momentum in its AWS segment, ongoing operational efficiency initiatives, disciplined cost management, and the expansion of its digital advertising business keep analysts bullish. AMZN stock has a “Strong Buy” consensus rating.

But for Amazon's stock to regain momentum, investors will need clearer evidence that its massive investments are translating into sustainable earnings and cash flow growth. Until then, AWS's strong performance alone may not be enough to drive a meaningful sustainable rally in AMZN stock.

On the date of publication, Amit Singh did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.