Nomura: Amazon AWS grows nearly forty percent as AI investment accelerates and margin pressure persists

How did growth and profitability change in the third quarter?

Amazon reported revenue of 201.9 billion dollars in the third quarter of 2026, up 12.1% year over year, in line with its guidance of 197 billion to 202 billion dollars and Bloomberg consensus expectations; operating profit rose 61% year over year, exceeding consensus by 8%.
AWS revenue reached 46 billion dollars, up 39.3% year over year and 8.9% quarter over quarter, exceeding Bloomberg consensus by 1%; however, its operating margin fell 0.7 percentage points quarter over quarter to 38.7%.
For the fourth quarter, the company guided for revenue of 240 billion to 247 billion dollars, up 12% to 16% year over year, and operating profit of 28.5 billion to 33.5 billion dollars.

Third-quarter capital expenditure rose 120.1% year over year to 77.3 billion dollars, directed primarily toward AWS and generative AI to support customer demand. Management maintained its guidance for approximately 220 billion dollars in cash capital expenditure in 2026 and expects spending to increase significantly further in 2027.
Customers often reserve large amounts of capacity in advance, with individual commitments typically involving hundreds of megawatts and sometimes reaching 1 gigawatt; management therefore has high visibility into demand from 2027 through 2029. AWS’s order backlog reached 578 billion dollars, up more than 100% year over year.
Nomura believes the outlook for sustained strong capital expenditure benefits AI infrastructure suppliers and is positive on optical module supplier Zhongji Innolight and PCB supplier Shengyi Electronics.

Management said it is shortening the time needed for investments to break even by extending infrastructure lifespans, increasing capacity utilization and using more in-house chips; Nomura believes these measures help proactively improve returns on investment.
Margins in the AI infrastructure business are currently lower than those of AWS’s core business, and rapid AI growth will lower the margin of the overall business mix; rising component prices, particularly higher storage costs, are also a source of margin pressure.
The in-house chip business continues to grow at a triple-digit rate. In the third quarter, revenue commitments for both Graviton and Trainium each grew more than 20-fold year over year; Amazon plans to begin selling Trainium chips outside AWS at the end of 2027.

AWS’s Bedrock has become its fastest-growing service ever to reach multibillion-dollar revenue. In the third quarter, Fortune 500 customers’ spending on Bedrock was nearly 7 times its year-earlier level, while the total number of tokens processed by the platform was nearly 17 times its year-earlier level.
The number of AI agents deployed by customers in the third quarter was twice the total for the preceding three quarters; many were built using Bedrock AgentCore components.
Amazon management believes AWS revenue can grow by more than 40% in each of 2027 and 2028, and that it could become a business with annual revenue of 1 trillion dollars within five to ten years.