Amazon's operating margin reached 13.9% in the third quarter of fiscal 2026, up 4.2 percentage points from 9.7% a year earlier and the highest in the company's history. The gain came even as the business absorbed a sharp rise in capital spending: quarterly free cash flow swung to an outflow of $34.8 billion, from a $0.4 billion inflow in the third quarter of 2025.
AWS's acceleration drove the margin record
Revenue rose 12.1% year over year to $201.9 billion, from $180.2 billion a year earlier, and 0.7% from $200.6 billion in the second quarter of 2026. Operating income climbed 61.2% year over year to $28.1 billion, from $17.4 billion, and 2.2% from $27.5 billion in the prior quarter. AWS sales grew 39% year over year to $46.0 billion, the fastest pace in nearly five years according to the results announcement, and AWS operating income rose to $17.8 billion from $11.4 billion.
Set against its own recent history, the acceleration looks less dramatic than the margin figure implies. Revenue grew faster than this quarter's 12.1% rate in five of the previous eight quarters, and the three-year compound growth rate to fiscal 2025 was 11.7%, against a five-year rate of 13.2%. What stands out is profitability: the 13.9% operating margin compares with an average of 10.8% over the preceding 12 quarters, so the step-up in margin is running well ahead of the step-up in growth.
| Metric | Q3 2025 | Q2 2026 | Q3 2026 |
|---|---|---|---|
| Revenue | $180.2bn | $200.6bn | $201.9bn |
| Operating income | $17.4bn | $27.5bn | $28.1bn |
| Net income | $21.2bn | $62.6bn | $20.7bn |
| Diluted EPS (GAAP) | $1.95 | $5.75 | $1.89 |
| Operating cash flow | $35.5bn | $45.4 billion | $42.4bn |
An EPS miss alongside a guidance beat
Amazon does not guide to earnings per share, but it does guide to net sales and operating income, and the third quarter beat both measures it set out in July. Operating income of $28.1 billion came in 14.6% above the midpoint of that guidance, and net sales of $201.9 billion landed 1.2% above the midpoint of the range management had set. Amazon has beaten the consensus EPS estimate in two of the past four quarters, and this was not one of them: reported EPS of $1.89 fell short of the $1.96 analysts had modelled on average, a shortfall of 3.5%. A comparable revenue consensus figure was not available for this comparison.
The year-earlier quarter included a $9.5 billion pre-tax gain on Amazon's investment in Anthropic, and its absence this year accounts for most of the decline, according to the company's filings. Net income also fell 67.0% from $62.6 billion in the second quarter of 2026, itself a quarter carrying a large non-operating gain, and diluted EPS fell 67.1% from $5.75 over the same comparison. Strip out the swings in non-operating income, and the operating business, with operating income up 61.2%, looks considerably stronger than the headline profit figures suggest.
New risk disclosures, standing risks, and what coverage got right
Amazon shares fell 5.6% in the first session after the results were published on October 29, against a 2.1% decline in the S&P 500 (SPY) over the same window. Coverage around the results has focused on the swing to negative free cash flow and on whether AWS's growth justifies the spending behind it. The cash-flow swing is confirmed in the filing: free cash flow fell to −$34.8 billion in the quarter, as operating cash flow of $42.4 billion was outpaced by capital spending.
A claim circulating in coverage, that Amazon has arranged an $80 billion supplier-financing facility, is not addressed in the quarter's SEC filings reviewed here.
Where the spending is going
On infrastructure, Amazon said a report 500 company spending on its Bedrock inference service grew nearly sevenfold year over year, and it signed new AWS agreements with Meta, Nvidia, OpenAI, Salesforce and others during the quarter. Chief executive Andy Jassy said the company projects AWS revenue growth of more than 40% in both 2027 and 2028.
Amazon said it plans to hire more than 300,000 seasonal and permanent staff across its US operations this holiday season, and to invest more than $1.5 billion raising minimum starting pay for full-time US operations employees.
Why the margin gain and the cash swing pull the model in different directions
On a trailing-twelve-month basis, Amazon's operating margin stands at 13.1%, up 2.1 percentage points on a year earlier. Over the same trailing twelve months, free-cash-flow margin is -5.9%, down 7.4 percentage points, as capital expenditure has grown 79.1% year over year to absorb 27.0% of trailing-twelve-month revenue. A model built on discounted cash flow weighs a persistent margin gain of this size against a persistent cash-flow deterioration of this size, and the two pull in opposite directions even though both stem from the same capital programme. These are model values under stated assumptions, not a comparison with the share price.
Dates and figures to track into year-end
Guidance for the fourth quarter calls for net sales of $240.0 billion to $247.0 billion, growth of 12% to 16% against the fourth quarter of 2025, and operating income of $28.5 billion to $33.5 billion, compared with $25.0 billion a year earlier. Amazon reiterated that 2026 cash capital expenditure will be approximately $220.0 billion, unchanged from prior guidance. The company said it remains on track to begin initial service of its Leo low-Earth-orbit satellite network later this year, and that Zoox is now running paid robotaxi rides in Las Vegas with testing under way in San Diego and Houston. Coverage has reported that Amazon plans to sell its Trainium AI chips outside AWS in late 2027, a claim not addressed in the filings reviewed here.
