Wall Street Sees AWS’s Ambition, But Can’t See the Future of Amazon’s Advertising Business

Amazon's third-quarter financial report delivered a "tale of two cities": its cloud business outlined an ambitious trillion-dollar vision, while its advertising business offset all surprises with an unexpected halving of growth. Ultimately, Wall Street voted with its feet—sending the stock sharply lower.

Amazon’s stock plunged 7% after hours. Total revenue for the third quarter was $20.19 billion, up 12% year-on-year, and earnings per share were $1.89, both below FactSet analysts’ expectations of $20.22 billion and $1.97. AWS achieved 39.3% year-on-year growth with an annualized revenue run rate of $184 billion, slightly beating Wall Street’s consensus of 38%, but failing to cross the "over 40%" threshold that institutional investors had set. Advertising growth plummeted from 26% last quarter to 12%, far below the market’s 18% expectation, making it the biggest negative surprise of this quarter’s report.

Strategically more significant was management’s forward guidance for AWS over the next two years. CEO Andy Jassy stated during the earnings call that he expects AWS to achieve over 40% revenue growth in both 2027 and 2028, with the potential to become a $1 trillion revenue business within five to ten years.

Jefferies analyst Jeffrey Favuzza noted in a post-earnings report that for a cloud giant, it’s almost unheard of to provide such multi-year guidance. However, the uncertainty in the outlook for the advertising business—especially the potential impact of AI agent technology on consumer shopping behavior—makes it difficult for analysts to build full confidence in Amazon’s long-term growth story.

This quarter, AWS reported revenue of $45.984 billion, accelerating its year-on-year growth from 37% in Q2 to 39.3%, marginally exceeding Wall Street’s 38% consensus forecast. Operating margin was 38.7%, essentially flat compared to last quarter’s 39.4%.

However, institutional investors had already raised the expectation bar to 42% or higher prior to the earnings release. According to Jefferies analyst Brent Thill, the "over 40%" growth benchmark was a core issue repeatedly discussed between buyers and sellers in recent weeks; while 39.3% technically beat consensus, there was a clear gap with buyers’ true expectations.

The data supporting AWS’s long-term narrative is quite impressive. AWS backlog rose 189% year-on-year to $578 billion, with a 17% quarter-on-quarter increase as well.

Andy Jassy revealed that AWS is currently installing an AI acceleration chip every 14 seconds on average, with the company’s self-developed chip business growing by triple digits year-on-year. Commitments for Graviton and Trainium chips have increased more than twentyfold compared to a year ago. Amazon also plans to start selling Trainium chips to clients outside AWS by the end of 2027.

Goldman Sachs analyst Eric Sheridan wrote in a flash note that AWS revenue was higher than expected but below buyers’ "over 42%" growth expectations—this discrepancy is one of the key issues in this report. Jeffrey Favuzza believes that if future sales of Trainium chips to external clients are considered, there is upside potential for AWS to exceed 40% growth.

The advertising business was the most controversial segment of this quarter’s earnings. Third-quarter advertising services revenue was $19.64 billion, with year-on-year growth (excluding currency effects) of only 12%. This represented a precipitous drop from last quarter’s 26% and was far below Wall Street’s expectation of about 18%.

Amazon attributed this anomaly mainly to the timing of Prime Day—this year’s Prime Day took place in the second quarter instead of the third, causing related advertising revenue to shift forward. The company expects advertising growth to recover to "close to high double digits" in the fourth quarter.

However, analysts were not entirely convinced by this explanation.

Brent Thill noted in Jefferies’ report that advertising growth of 12% was significantly below the market’s 18% expectation. While timing was a factor, the magnitude of the slowdown could not be ignored. The Goldman Sachs research team likewise identified advertising as one of the core areas where results fell short this quarter.

Deeper concerns point to the potential disruption of AI agent technology on the shopping and advertising ecosystem.

Amazon proactively addressed external concerns during the earnings call, saying that its AI shopping assistant, Alexa for Shopping, reached over 400 million users in the past 12 months, and revealed that the company has blocked Meta’s Muse agent from accessing its platform. Andy Jassy took a relatively conservative stance toward third-party AI agents, stating, "Not many consumers are shopping this way right now because the experience isn’t good enough, nor is it more convenient than one-click ordering directly from a retailer."

However, Emily Collins, Forrester’s Vice President and Director of Research, commented that "How horizontal AI agents ultimately disrupt the way consumers discover products and the boundaries of advertising’s influence remains an unresolved question for the entire big tech industry."

Despite the overall weak financial results, major sell-side firms maintained their Buy ratings on Amazon. Jefferies kept its "Buy" rating and $330 price target, based on approximately 15x 2027 EV/EBITDA, offering about 35% upside from the current share price. Goldman Sachs also maintained its "Buy" with a 12-month price target of $375, based on a sum-of-the-parts valuation, representing about a 47% potential upside.

The Goldman Sachs research team projected Amazon’s full-year revenue to reach around $825 billion in 2026, further rising to approximately $962.4 billion and $1.1 trillion in 2027 and 2028, respectively. Jefferies pointed out that the stock currently trades at about 10x NTM EV/EBITDA, which to some extent reflects market concerns over current business performance.

The core issues both institutions focused on include: the medium- to long-term impact of AI agent-driven commerce on the advertising ecosystem, the pace of AWS capacity expansion relative to visible demand, and the extent to which rising capital expenditures may suppress free cash flow. These uncertainties are perhaps why, even as Wall Street appreciates AWS’s ambition, it remains cautious about Amazon’s complete investment story.