Amazon’s AWS grew 39%. Wall Street still sold the stock.

1. Three earnings reports, one selloff

Google fell 12.64% in a single day, its largest one-day drop since listing. Amazon fell more than 10% after hours. Intel fell more than 23%.

All three companies beat cloud revenue expectations. AWS Q3 net sales were $45.98 billion, up 39.3% year over year, the fastest growth in nearly five years. Google Cloud growth reached 103%, helped by external TPU sales. Microsoft’s cloud business also beat expectations.

Investors sold all three anyway.

2. Amazon: good income statement, bad cash-flow statement

Amazon’s Q3 operating profit rose 61.2% year over year. Operating margin hit a record 13.9%. Net income fell 2.4%, and diluted EPS was $1.89, below expectations. The gap came from last year’s Q3, when Amazon recognized a $9.5 billion pre-tax gain on its investment in Company A. This quarter, other income and expense was a $700 million net loss, and quarterly interest expense rose 214% from $540 million a year earlier.

Segment operating margins all slipped from Q2. The 13.9% group margin held up because AWS made up a larger share of revenue.

Advertising was the biggest miss. Q3 ad revenue was $19.64 billion, up 11% year over year and about 6% below expectations. Growth fell from 24% in Q2 to 11%. Management said the Prime event moved from Q3 to Q2 in most markets this year, pulling sales and ad spend forward. That cut Q3 revenue growth by about 400 basis points and created an 850-basis-point quarterly gap in ad growth. Excluding the calendar shift, paid units sold rose 12% year over year, in-app shopping assistant interactions rose 570%, and customers using the assistant spent 50% more per order. Management expects Q4 ad growth to return to 15% to 20%.

Q4 guidance was conservative at the midpoint: revenue of $240 billion to $247 billion and operating profit of $28.5 billion to $33.5 billion. Analysts expected $244.3 billion and $33.1 billion. Q4 line-haul and fuel costs are higher than in Q3. Amazon also delayed capitalization of low-Earth-orbit satellite production and launch costs to Q1 next year, so most satellite spending still hits Q4 expenses.

3. AWS: fastest growth, largest bill

AWS Q3 operating profit was $17.77 billion, up 55.5% year over year. It contributed 63% of group operating profit on 23% of group revenue. Backlog reached $578 billion, with triple-digit year-over-year growth. Management expects AWS revenue growth above 40% in each of the next two years, based on customer bookings for gigawatt-scale capacity blocks in 2027 through 2029.

Inference now makes up more than half of AWS AI revenue. In Q3, agents deployed through Bedrock AgentCore more than doubled the total from the previous three quarters combined. Local AI inference drove AWS compute, storage, and database services to their fastest growth in years. Graviton, AWS’s in-house ARM chip, offers 30% to 40% better price-performance than x86. Trainium, which handles most Bedrock token inference, is sold out, and prior-generation short-term capacity sold at a premium. Customer revenue commitments for Graviton and Trainium each rose more than 20 times year over year.

The bill shows up in the cash-flow statement. Q3 capex was $77.26 billion, up 120% year over year and nearly $20 billion above the $57.47 billion analysts expected. That equaled 179% of quarterly operating cash flow. Amazon kept full-year capex guidance at about $220 billion and said 2027 will rise further. Quarterly free cash flow was negative $33.46 billion. Trailing 12-month free cash flow was negative $42.36 billion, 5.6 times the negative $7.6 billion at the end of Q2. Amazon borrowed $115.1 billion in the first three quarters, including $48.1 billion in Q3. Long-term debt rose from $65.65 billion at the end of last year to $173.13 billion. After subtracting $114.23 billion in cash and marketable securities, Amazon went from $57.4 billion in net cash to $58.9 billion in net debt.

4. The three companies: cash self-funding is the dividing line

Microsoft’s cloud revenue beat expectations. Its quarterly capex was $39.37 billion. Operating cash flow was $58 billion. Free cash flow was positive $18.6 billion. It needed no external financing. Microsoft also converted some compute demand into installment leases with new cloud vendors.

Google Cloud grew 103%, including external TPU sales. Capex was about 121% of operating cash flow. Free cash flow was negative. Google paused buybacks and used debt or equity to fill the gap.

Amazon’s cloud revenue grew 39.3%. Capex was $77.26 billion, or 179% of operating cash flow. Free cash flow was negative $33.46 billion. Amazon borrowed $48.1 billion in Q3.

The self-developed chip routes differ in when revenue appears. Google sells TPU hardware. It books large hardware revenue when products ship, but gives up later cloud service value. Stocking those systems raises inventory and uses operating cash flow. Amazon keeps Trainium and Graviton inside AWS. It gives up hardware revenue now, but expects five to six years of cloud use to produce more cumulative revenue and free cash flow than one-time sales. Management said vendors that rely on third-party colocation or new-cloud leasing run operating margins about 35 percentage points lower than vendors with self-built or long-term leased data centers. AWS still holds a 38.7% operating margin despite heavy depreciation because it owns more of that cost stack.

5. The maturity gap

Cloud revenue is accelerating at all three companies. Capex is accelerating faster. Quarterly outflows of $50 billion to more than $70 billion correspond to cloud service revenue recovered over five to six years. High rates make that gap wider. Depreciation arrives later, interest is paid quarterly, and revenue is recognized over years.

Demand is not in question. AWS backlog is $578 billion and growing at a triple-digit rate. Google Cloud grew 103%. Microsoft’s cloud business beat. What investors are repricing is the cost of growth: whether operating cash flow covers capex, how fast net debt rises, and how much depreciation and interest eat into margins.

6. Three checks

First, Amazon’s Q4 advertising growth. After the calendar shift clears, ad revenue needs to return to 15% to 20%. Below 15% would mean the e-commerce ecosystem is monetizing high-margin ads more slowly than management promised, and the retail margin cushion gets thinner.

Second, AWS operating margin. Net equipment of $508.9 billion is entering its depreciation peak. Long-term debt of $173.1 billion carries nearly $1.7 billion in quarterly interest. Trainium savings need to keep AWS operating margin near 38%. Below 35% would mean depreciation and interest are eating the in-house chip advantage.

Third, the 2027 capex versus operating cash flow gap. All three companies expect capex to rise in 2027. When they disclose budgets next quarter, watch whether operating cash flow growth outruns capex growth again. Operating cash flow at 100% of capex or higher is the precondition for negative free cash flow to narrow.

The third check matters most. The first two show quarterly resilience. The third shows whether this heavy-asset buildout can pay for itself.

Data comes from public filings and market discussion. This is a learning note, not investment advice.