Amazon.com, Inc. (AMZN.US) Shares Plunge After Earnings; Wall Street Rushes to Defend: AWS Growth Thesis Intact

Title context: Amazon.com, Inc. (AMZN.US) Shares Plunge After Earnings; Wall Street Rushes to Defend: AWS Growth Thesis Intact Text: Amazon.com, Inc. (AMZN.US) shares fell sharply after the company reported third-quarter earnings, but many Wall Street institutions remain optimistic. The earnings themselves were not weak: revenue rose 12% year over year to $201.9 billion, operating income jumped 61% to $28.1 billion, and the operating margin hit a record high. The market selloff is focused not on current-period results but on returns on AI investment and pressure on free cash flow. Management said the shift of Prime Day into the second quarter weighed on reported growth, and excluding that effect, growth would have been "about 400 basis points higher." AWS was the star of the earnings call, with revenue reaching $46 billion and growth accelerating. Amazon.com, Inc. maintained its 2026 capital expenditure plan of about $220 billion (mainly for AWS) and expects spending to "increase significantly" in 2027. JPMorgan: Maintains "Overweight" rating, price target $365 Analyst Doug Anmuth noted that AWS grew 39% year over year in the third quarter, slightly below the firm's 41% estimate but still the fastest growth in five years, and that it remains capacity constrained; AWS backlog reached $578 billion, up 189% year over year and 17% quarter over quarter, and a considerable portion of capacity through 2028 is already sold out. He believes management's strong visibility into demand gives it confidence to commit to growth of more than 40% over the next two years and to invest more aggressively in AI compute infrastructure. "We recognize that increased investment and greater free cash flow consumption near term may invite some skepticism, but Amazon.com, Inc. is demonstrating returns and laying the foundation for a much larger business over the medium and long term," he wrote. On capital expenditure, Amazon.com, Inc. kept its 2026 plan unchanged at about $220 billion, but third-quarter spending alone reached $77 billion; the firm expects capital expenditure to rise to $395 billion in 2027 (up 77% year over year) and further to $476 billion in 2028, with free cash flow of about -$128 billion in 2027. The firm believes that payback in less than three years for servers and networking equipment, a five-to-six-year useful life, and a 30-year useful life for data centers support the returns on heavy investment. Bank of America Corp: Maintains "Buy" rating, price target $317 Analyst Justin Post said that strong backlog growth both quarter over quarter and year over year, driven by new enterprise contracts, steadily rising utilization of custom chips with external chip sales imminent, and continued growth in Alexa shopping usage convince the firm that Amazon.com, Inc. has a strong AI positioning and is one of its top picks in the technology sector. Post noted that Amazon.com, Inc.'s next catalyst is the re:Invent conference, where it may showcase new Trainium chips, AI applications, and even frontier model progress. Susquehanna: Maintains "Positive" rating, price target $325 Analyst Shyam Patil believes that despite some near-term noise, the firm still views Amazon.com, Inc. as a long-term sustained grower, supported by its strong e-commerce, cloud and AI, and advertising businesses. Morgan Stanley: Maintains "Overweight" rating and names it a top pick, price target cut to $335 from $350 Analyst Brian Nowak believes that AWS's 39% year-over-year growth in the third quarter was below the firm's model forecast of 42%, but it is more a shortfall in expectations -- the $3.8 billion quarter-over-quarter revenue increase in the third quarter was AWS's second-largest quarterly increment in history and does not change its potential to accelerate further. The firm lists six factors supporting AWS's subsequent growth: the high end of the company's fourth-quarter revenue guidance implies AWS growth in the low-to-mid 40% range; third-quarter capital expenditure of $77 billion signals chip and rack deliveries and new data center deployments; management guides for growth of more than 40% in 2027-2028; AWS's path toward $1 trillion in revenue is not fully priced in; the $578 billion backlog; and external Trainium sales. The firm cut its AWS revenue growth forecasts for 2027 and 2028 to 44% and 42%, respectively, from 47% and 42%. On the retail side, the firm also offered a positive assessment. Amazon.com, Inc.'s "agentic shopping" position is solid: over the past year, more than 400 million customers used Alexa to shop, up 60% year over year, user engagement rose 570%, and U.S. customers using the feature spend on average 50% more than non-users. In addition, unit fulfillment costs and unit shipping costs fell 3% and 2% year over year, respectively, despite headwinds of about $880 million in fuel and line-haul transportation costs; despite an approximately $1 billion headwind from the delay in capitalizing Project Leo to the first quarter of 2027 (relative to the firm's prior forecast), North America retail EBIT margin is still expected to reach about 10%. Seeking Alpha analyst Daniel Jones believes the sharp share price decline is precisely an opportunity to add to positions; another analyst, Bohdan Kucheriavyi, is more cautious, citing concerns about free cash flow and the long-term debt position. As of press time, Amazon.com, Inc. fell 6.85% premarket to $227.10.