AI compute capacity sells out as soon as it is installed! Amazon.com, Inc. (AMZN.US) says in Q3: capital expenditure will be increased again next year, betting on long-term returns.

Amazon.com, Inc. (AMZN.US) reported Q3 2026 revenue of $201.9 billion, up 12% year-over-year, and operating income up 61% to $28.1 billion. Chief Financial Officer Brian Olsavsky said the company's operating margin reached a record 13.9%; AWS revenue grew 39.3% year-over-year, with an annualized run rate of $184 billion and backlog of $578 billion. While AI and cloud demand are accelerating growth, the company's Q3 cash capital expenditure reached $75.9 billion, with full-year guidance of approximately $220 billion, and spending is expected to rise significantly in 2027. Management said on the earnings call that this infrastructure investment cycle is aimed at expanding revenue, free cash flow and return on invested capital over the long term, but AI services currently carry lower margins than the core cloud business, and component prices remain a pressure. AWS accelerates on AI and core cloud demand Chief Executive Officer Andy Jassy said results were mainly driven by continued acceleration at Amazon.com, Inc.'s cloud service (AWS), retail unit growth and continued investment in AI infrastructure. The company also forecast Q4 net sales of $240 billion to $247 billion and operating income of $28.5 billion to $33.5 billion. Specifically, AWS revenue totaled $46 billion for the quarter, up 39.3% year-over-year and up $3.8 billion quarter-over-quarter. The cloud business's annualized revenue run rate reached $184 billion. AWS operating income was $17.8 billion, a 38.7% operating margin. Jassy said AWS growth has accelerated for a sixth consecutive quarter and reached its fastest pace in nearly five years. He cited strong demand for both traditional cloud computing and AI services, and noted AWS backlog reached $578 billion, with triple-digit year-over-year growth. "Customers snap up our compute almost as fast as we deploy it," Jassy said, adding that Amazon.com, Inc. deploys an AI accelerator roughly every 14 seconds. The company said Amazon Bedrock its managed service for accessing and building applications on foundation models has become the fastest-growing billion-dollar service in AWS history. According to Jassy, Fortune 500 companies' spending on Bedrock grew nearly sevenfold year-over-year, and total token processing volume grew nearly 17-fold. Amazon.com, Inc. recently added OpenAI models to the platform, as well as hosted versions of Kimi, GLM and SpaceX models. Jassy also highlighted demand for the company's custom chips. He said revenue commitments for Graviton and Trainium grew more than 20-fold year-over-year, and customers using Amazon.com, Inc.'s custom chips saved more than $2 billion this quarter. Amazon.com, Inc. plans to offer Trainium outside AWS starting in late 2027. Looking ahead, Jassy said Amazon.com, Inc. expects AWS to grow more than 40% in both 2027 and 2028, and believes the business could become a trillion-dollar annual revenue business within five to ten years. He said the outlook reflects visibility into large-scale customer compute commitments, continued enterprise cloud migration and growing production use of AI inference. Capex rises with AI infrastructure buildout Amazon.com, Inc.'s Q3 cash capital expenditure totaled $75.9 billion, mainly for AWS and AI infrastructure. The company continues to expect full-year 2026 cash capital expenditure of approximately $220 billion, most of it directed to AWS, and Jassy said spending is expected to increase significantly in 2027. Management said it views this investment cycle as a long-term opportunity to expand revenue, free cash flow and return on invested capital. Jassy said the company continues to shorten the time needed for infrastructure investments to break even, though he noted returns differ between core cloud and AI infrastructure. Olsavsky said AWS profitability benefits from capacity optimization, fixed-cost management, custom chips and networking investments. But he noted AI services currently carry lower margins than AWS's core business, creating structural pressure on overall margins. Component prices also remain a headwind. Jassy said Amazon.com, Inc. owns or long-term leases most of its data center capacity, and combined with its use of custom chips, this gives it a structural cost advantage over cloud providers that rely more on colocation or "neocloud" arrangements. Retail margins, faster delivery and grocery expansion Amazon.com, Inc. North America revenue grew 6% to $112.9 billion, and international revenue grew 8% excluding currency effects to $43.1 billion. Global paid units grew 12%. Results were affected by the timing of Prime Day. This year the promotion was held in Q2 in most major markets, whereas in 2025 it fell entirely in Q3. Olsavsky said excluding this timing change, Q3 revenue growth would have been about 400 basis points higher year-over-year. North America operating income totaled $8.7 billion, a 7.7% margin; international operating income was $1.6 billion, a 3.7% margin. Amazon.com, Inc. said that despite higher fuel and line-haul costs, it lowered overall fulfillment costs through better inventory placement, shorter shipping distances and package consolidation. Shipping costs grew 11% year-over-year, while unit volume grew 12%. Olsavsky said excluding fuel and line-haul inflation, shipping costs rose 8%, about 400 basis points below unit growth. Jassy said Amazon.com, Inc. delivered more than 1.5 billion items to Prime members via same-day or next-day delivery this quarter. The company's ultrafast delivery service Amazon Now is now available in more than 450 towns and cities, and the number of items ordered through the service grew tenfold year-over-year. Grocery and everyday essentials remain a focus. Fresh grocery and everyday essentials grew about three times as fast as the rest of Amazon.com, Inc.'s stores and accounted for about half of unit volume this quarter. Management said customers using same-day fresh delivery buy about seven times as many everyday essentials as those who do not. Advertising, pharmacy and Q4 outlook Amazon Ads Q3 revenue was $19.6 billion, up 12% year-over-year. Jassy said growth was affected by the shift of Prime Day into Q2, the timing of NBA programming on Prime Video, and the comparison base from last year's search engine marketing program changes. He said Amazon.com, Inc. expects Q4 advertising revenue growth to recover to the high-teens level. Jassy said Amazon Pharmacy customers grew more than 60% year-over-year, with repeat customers up more than 50%. The company now offers three-hour prescription delivery in more than 350 cities. For Q4, Amazon.com, Inc. expects currency to reduce net sales growth by about 60 basis points year-over-year. Olsavsky also said fuel and line-haul inflation is expected to be higher in Q4 than in Q3. Commercial service for Amazon Leo remains on track to begin initial operations before year-end. The company expects to begin capitalizing some Leo production and launch costs in Q1 2027; as a result, it expects to continue expensing most Leo-related costs in Q4. Full transcript (1) Host (Operator) Thank you for your patience. Hello everyone, and welcome to the Amazon.com, Inc. Q3 2026 earnings conference call. (Operator instructions) This conference is being recorded. At this time, I would like to turn the call over to Mr. Dave Fildes, Vice President of Investor Relations. Thank you, please go ahead. (2) Dave Fildes Vice President, Investor Relations, Opening Remarks Hello everyone, and welcome to our Q3 2026 earnings conference call. Joining us today to answer your questions are our CEO Andy Jassy and CFO Brian Olsavsky. While listening to today's call, we encourage you to have our press release in front of you, which includes our financial results, metrics and commentary for the quarter. Please note that unless otherwise stated, all comparisons on this call are against prior-year Q3 2025 results. Our remarks and responses to questions reflect management's views as of today (October 29, 2026) only and include forward-looking statements. Actual results may differ materially. For more information on factors that could affect our financial results, please see today's press release and our filings with the Securities and Exchange Commission (SEC), including our most recent 10-K annual report and subsequent filings. During this call, we may discuss certain non-GAAP financial measures. In our press release, the slides accompanying this webcast and our SEC filings, all of which are posted on our Investor Relations website, you will find supplemental disclosures regarding these non-GAAP measures, including reconciliations to comparable GAAP measures. Our guidance incorporates the order trends we have seen to date and the assumptions we currently believe are appropriate. Our results are inherently unpredictable and may be materially affected by many factors, including fluctuations in foreign exchange rates and energy prices, changes in global economic and geopolitical conditions, tariff and trade policies, resource and supply fluctuations (including memory chips), customer demand and spending (including the impact of recession concerns), inflation, interest rates, regional labor market constraints, world events, the rate of growth of the internet and online commerce, cloud services and emerging technologies, and the various factors detailed in our SEC filings. Our guidance assumes (among other things) that we will not conclude any additional business acquisitions, restructurings or legal settlements. It is not possible to accurately predict demand for our goods and services, and therefore our actual results could differ materially from our guidance. With that, let me turn the call over to Andy. (3) Andrew Jassy President, Chief Executive Officer and Director, Keynote Remarks Thank you, Dave. We reported revenue of $201.9 billion, up 12% year-over-year. Operating income was $28.1 billion, up 61% year-over-year. Q3 was another strong quarter for Amazon.com, Inc. On AWS, our plan is working. Despite adding substantial capacity in the year-ago period, AWS delivered 39.3% year-over-year growth, accelerating for a sixth consecutive quarter and marking our fastest growth in nearly five years. Backlog reached $578 billion, with triple-digit year-over-year growth, and is highly diversified. We install an AI accelerator roughly every 14 seconds, and customers consume it almost as fast as we install it. Our core compute and storage revenue grew at its fastest pace in years. Our core business has long had strong operating margins, and now AI margins are improving rapidly, clearly ahead of where the core business was at a similar stage of development. Despite rising component costs, including memory, and the significant depreciation from our capital expenditure, we continue to accelerate payback on our capital spending and are more confident than ever that our AWS investments will produce a revenue and free cash flow business far larger than we could have imagined two or three years ago, with strong returns on invested capital. We are forming a highly attractive flywheel at AWS. Borrowing Jim Collins' definition of the flywheel in "Good to Great" if you do A, you will almost inevitably do B; if you do B, you will almost inevitably do C, and so on. At AWS, leading features, security and operational performance inevitably drive customers to run applications and store data on AWS; that inevitably drives AWS AI demand (because customers want their production inference close to the rest of their data and applications); that in turn drives core AWS demand (because AI needs to leverage core services for reinforcement learning, post-training and tool use); and that in turn inevitably drives reinvestment in our broader AWS capabilities. This is a different model from primarily hosting GPUs or short-term data center capacity leases. It is a long-term platform strategy that can broadly help customers invent and evolve customer experiences, operate reliably, and build durable multi-year partnerships. At the same time, it delivers highly attractive long-term economics for us whether or not supply is scarce. There are many examples of AWS progress; I'll share just a few. On the core business, it's important to remember that the vast majority of global IT spending (about 85%) remains on-premises, and we are in a 10-to-20-year cycle in which this will shift to the cloud. Conventional wisdom held that critical workloads like mainframes or storage area networks would never move to the cloud. But they are moving, because AWS has built unique cloud alternatives and AI-driven migration capabilities that make the transition easier. Enterprises gain lower capital expenditure, lower operating costs, faster innovation, higher developer productivity and better data accessibility, making it easier to leverage AI. Our core business margins are attractive because we have learned over 20 years how to operate efficiently. As the core business grows, we continue to reinvest in core AI capabilities. For example, as customers generate more data and want value from analytics and AI, moving data between data storage and analytics engines is cumbersome and expensive. Through the acquisition of DuckLabs, DuckDB will become the universal SQL dialect for AWS storage and analytics, simplifying data processing with a modern analytics engine fast, easy to use and ubiquitous, so customers can write a SQL query once and execute it on any AWS analytics service. In analytics, for the first time, customers will have zero migration or zero portability cost between query engines. That's a big deal. You can imagine it will also help agents query efficiently. On AI, we continue to expand the capabilities of our inference service Amazon Bedrock, which is driving significant growth Fortune 500 customers' spending on Bedrock grew nearly 7x year-over-year, and overall Bedrock token volume grew nearly 17x year-over-year. Bedrock is the fastest-growing billion-dollar service in AWS history. We recently brought OpenAI models to Bedrock, and usage is growing rapidly. We also just launched Bedrock-hosted versions of Kimi, GLM and SpaceX models. You can't talk about AI today without talking about security. This is another reason customers continue to choose Bedrock. We designed Bedrock to ensure customer data remains secure and private. Inputs and outputs are never shared with model providers and never used to train foundation models. When customers fine-tune a foundation model, we create private copies dedicated to their use, with data fully encrypted in transit and at rest. As frontier models become more powerful, they are discovering previously undiscovered software vulnerabilities at an unprecedented pace. We built AWS Continuum to discover, prioritize, validate and remediate code vulnerabilities at machine speed. Customers such as Capital One, IBM, Infor, Luminate and Robinhood are already adopting it. In Q3, we announced integration into the tools used to write code Anthropic's Claude Code, OpenAI's Codex and AWS's Kiro. Customer interest in this new security service exceeds anything we have seen. Agent deployment is proceeding at an accelerating pace, many built on Bedrock AgentCore building blocks. Tens of thousands of customers now use AgentCore, and the number of agents deployed in Q3 was 2x the total of the prior three quarters combined. Beyond building their own dedicated agents, most companies will use off-the-shelf agent services, and we offer several that customers love. Kiro for coding, Amazon Connect for contact center agents, Amazon Transform for migration. They are all iterating quickly and winning customer favor. So is Amazon Quick (our intelligent AI work companion), which is growing rapidly, with large enterprises such as Mondelez, EchoStar, 3M, Southwest Airlines Co. and DXC choosing Quick because it is purpose-built for work and uncompromising on customer data. Finally, our chip business continues to grow triple digits year-over-year, with revenue commitments for Graviton and Trainium each growing more than 20x year-over-year. AI continues to be a tailwind for Graviton, because reinforcement learning for post-training and agent tool use run mainly on CPUs (not AI accelerators), and Graviton is the most powerful CPU chip, with 30% to 40% better price-performance than comparable products. In Q3 alone, customers using our custom chips saved more than $2 billion. We also just open-sourced TorchNeuron, enabling developers to run their existing PyTorch code which most already use on Trainium without rewriting any code. As we launch new generations of chips, demand for prior generations remains strong. After launching Graviton 5, backlog for prior-generation Graviton instances still more than doubled quarter-over-quarter. Compared with the first half, short-term capacity for prior-generation training instances is selling at a premium. Because training demand is so strong, customers continue to encourage us to offer this capability outside AWS we plan to do so in late 2027. Overall demand for AWS capacity remains exceptionally strong. Enterprises are still very early in using inference at scale, yet inference already accounts for more than half of AWS AI revenue and is still growing. We also have substantial training revenue. We continue to expect 2026 cash capital expenditure of approximately $220 billion, most of it directed to AWS, and expect to invest more in 2027. As I said on last quarter's call, we have a clear plan for strong financial returns. AWS is a business with a $184 billion annualized revenue run rate, but the opportunity remains extraordinary. With our continued pace of innovation, new core and AI capabilities, enterprises' desire to run their core and AI workloads on AWS, and the capacity we add each year, we believe AWS can grow more than 40% in each of 2027 and 2028 and become a $1 trillion revenue business within the next 5 to 10 years. We are very early in this inflection, our strategy is working, and I expect it to continue working for the foreseeable future. In retail (stores), I think some underestimate the progress the business has made in recent years and its scale today. I know of no other retail business that can grow at this pace while reaching Amazon.com, Inc.'s scale (hundreds of billions of dollars, with double-digit operating margins including advertising). Year to date, unit sales grew nearly 15% year-over-year, on top of a massive base of more than 30 billion items sold last year. In absolute dollars, we added more than $90 billion in gross sales over the past 12 months. We are growing significantly faster than other retail competitors, adding about 2x the gross sales of the second-largest competitor each quarter in the U.S., and we continue to gain retail share. Over the past few years, our North America and international segment operating margins have each expanded by nearly 10 percentage points, enabling us to reinvest and improve the customer experience. Remember, it's still early. The vast majority of retail (nearly 80%) still happens in physical stores. Over time, this will eventually shift to e-commerce. We are driving that shift by rapidly building an efficient, fast fulfillment network that delivers a delightful customer experience while generating substantial free cash flow and return on invested capital. From faster delivery to cost to serve, to grocery and pharmacy, to AI shopping, each of our priorities is a growth multiplier, and we are firing on all cylinders. With our investments in the same-day delivery network and ultrafast services Amazon Now and Amazon Prime Air, our delivery speeds continue to increase. We had the fastest Q3 ever globally, delivering more than 1.5 billion items to Prime customers via same-day or next-day delivery in Q3. We are encouraged by customers' enthusiasm for our rapid global rollout of Amazon Now, which is now available in more than 450 towns and cities, with items ordered through Amazon Now up 10x year-over-year. We are on track to lower cost to serve for a fourth consecutive year, enabling us to continue to meet or beat competitors' prices and offer a broad selection of fresh food and everyday essentials cost-effectively. Faster speeds are driving our grocery business, including fresh and everyday essentials, with total sales over the past 12 months growing to nearly $250 billion. In Q3, fresh food and everyday essentials grew about 3x the rate of the rest of the stores business and accounted for about half of total units. Customers who buy fresh via same-day delivery buy nearly 7x as many everyday essentials as those who do not. Active grocery customers buy non-grocery categories such as home and apparel nearly 4x as often as non-grocery customers and spend more than 2x as much in those categories. Amazon.com, Inc. Pharmacy is also growing rapidly. Customer count grew more than 60% year-over-year, accelerating in each quarter of 2026, and repeat customers grew more than 50% year-over-year. J.D. Power recently named Amazon Pharmacy the best mail-order pharmacy for a third consecutive year. We continue to improve, now offering 3-hour prescription delivery in more than 350 cities. Over the past 12 months, more than 400 million customers used our agentic shopping assistant Alexa for Shopping, with customer interactions up 570% year-over-year. U.S. customers who use Alexa for Shopping spend 50% more per order than those who do not. It researches products, compares options, checks a full year of price history, provides personalized gift recommendations, and tracks deals and price drops for customers. While we expect to work with horizontal agents, we believe Alexa for Shopping will become the primary shopping agent customers use when shopping on Amazon.com, Inc. As you browse, get inspiration and view product detail pages, having a shopping assistant by your side that you can ask to place an order directly based on past purchase history it already knows your history, shipping address and payment information is a uniquely convenient experience for customers. Turning to Amazon.com, Inc. Ads. We delivered Q3 revenue of $19.6 billion, up 12% year-over-year. Despite some timing anomalies last quarter, we are pleased with the overall momentum across our advertising portfolio. I'll mention three factors affecting growth. First, we moved Prime Day in most countries to Q2, shifting meaningful sales and advertising revenue that occurred in Q3 2025 into Q2 2026 a tailwind to our Q2 2026 growth and a headwind to Q3 2026. For advertising, this created an 850 basis point quarter-over-quarter impact on Q3 year-over-year growth. Second, Q2 2026 included the first season of NBA on Prime (there was none in Q2 last year), while Q3 included no NBA (NBA starts in Q4). Third, in Q3 2025, we adjusted our search engine marketing program to direct more traffic to search pages on Amazon.com, Inc. This was a better experience for customers, we monetized that traffic at higher rates, and it began boosting advertising revenue a year ago and we are now lapping it. We expect Q4 year-over-year growth to return to the high-teens level. A natural question is whether agentic shopping from external horizontal agents is significantly affecting Amazon.com, Inc. advertising. The answer is no. Few customers currently shop heavily this way, because the experience isn't yet good enough or more convenient than going directly to a retailer to research or one-click order. Our advertising team innovated extensively in Q3, and we expect positive impact in the coming months, led by Amazon Ads Agent which brings our full advertising portfolio under a single AI-first platform, powered by trillions of shopping, browsing and streaming signals, giving advertisers insights, answers and the ability to optimize and act on their behalf at every step. We also launched full-funnel campaigns in Amazon Ads Agent, combining search, display, video and streaming TV into a single campaign. Advertisers provide initial inputs (including budget and flight duration), and Amazon.com, Inc.'s AI plans, executes and continuously optimizes the rest. We continue to see momentum in several other areas. I'll mention just a few. Prime Video has become a significant business, with a revenue run rate in the tens of billions of dollars, and is itself profitable. We have strong momentum with hit series such as "Carrie," "The Summer I Turned Pretty," "The Boys," "Off-Campus," "Reacher" and "Fallout," blockbuster films such as "Project Hail Mary," and highly attractive live sports (including the best-starting Thursday Night Football of 2026, NBA on Prime, NASCAR, the Masters and UEFA Champions League soccer). We recently launched our strongest device lineup ever, with 34 new products across Echo, Kindle, Alexa tablets, Fire TV, Ring and Bee. It's still early, but we're off to a very strong start and look forward to more customers getting their hands on these products as the holiday season arrives. Finally, Amazon Leo remains on track to begin offering initial service this year. We are about to enter the most exciting stretch of the year re:Invent and the holiday season together. I want to thank our teams for their hard work and innovation day in and day out, making customers' lives better and easier. What we are building at Amazon.com, Inc. is unprecedented. There has never been a business with $1 trillion in annual revenue. Amazon.com, Inc. is on a path to have two such businesses (AWS and retail stores). That is very rare, and we are energized by what lies ahead. Over to Brian. (4) Brian Olsavsky Senior Vice President and Chief Financial Officer, Financial Review Thank you, Andy. Let's start with overall revenue results. Worldwide revenue was $201.9 billion, up 12% year-over-year; up 13% excluding currency effects. Worldwide operating income was $28.1 billion, a 13.9% operating margin, our highest operating margin ever. Let's look at North America and international segment results. First, a reminder that Prime Day timing changed this year, with the sales event occurring in Q2 in most of our largest countries, including the U.S. In 2025, Prime Day fell entirely in Q3. Excluding the impact of the Prime Day timing change, Q3 2026 year-over-year growth would have been about 400 basis points higher. We saw strong customer engagement in Q3 and a continuation of first-half trends. North America segment Q3 revenue was $112.9 billion, up 6% year-over-year. International segment revenue was $43.1 billion, up 8% year-over-year excluding currency effects. Worldwide paid units grew 12% year-over-year. Prime remains a key pillar of our business. Hundreds of millions of Prime members are responding to the combination of our vast selection, low prices and record delivery speeds. Over the past year, Prime members' orders of fresh groceries through free same-day delivery more than tripled on a monthly basis. Next, profitability. North America segment operating income was $8.7 billion, a 7.7% operating margin. International segment operating income was $1.6 billion, a 3.7% operating margin. In the fulfillment network, teams dealt with higher transportation costs from fuel inflation and higher line-haul rates. Even with these headwinds, we lowered overall cost to serve in Q3 through better inventory placement, shorter shipping distances and package consolidation. Shipping costs grew 11% year-over-year, while units grew 12%. Excluding fuel and line-haul inflation, shipping costs grew 8%, about 400 basis points below unit growth. Robotics and AI are delivering measurable gains in productivity and employee safety, and we expect these gains to compound in the future. In 2026, we doubled our fleet of robotic arms such as Cardinal and Sparrow. We are also developing robotics foundation models to enable faster programming and teach robots increasingly complex physical tasks, with the goal of delivering useful robots at scale. Looking ahead, we see significant opportunity to improve productivity and lower cost to serve across our global fulfillment network while delivering products to customers faster. Our operating margins will fluctuate quarter to quarter, but we are focused on sustained long-term improvement in cost to serve. Next, the AWS segment. Revenue was $46 billion, up 39.3% year-over-year, driven by both core and AI services. We added $3.8 billion in revenue quarter-over-quarter. AWS now has an annualized revenue run rate of $184 billion. Customers continue to migrate to the cloud and expand their use of AWS core services. And increasingly, customers who want the full benefits of AI are accelerating their migration to the cloud. We see a strong correlation between AI spending and growth in our core services revenue. As customers invest in AI, we see corresponding increases in core consumption, and we expect this relationship to strengthen as more AI workloads move into production and drive new demand for compute, storage and networking. AWS operating income was $17.8 billion, a 38.7% operating margin, reflecting our strong focus on efficiency gains. Our investments in custom chips and custom networking, along with software and process improvements, are helping us optimize capacity and build more cost-effective infrastructure. As we've consistently said, we expect AWS operating margins to fluctuate, partly depending on our level of investment at any given time. Our AI offerings are gaining customer traction, with AI revenue growing triple digits year-over-year. Bedrock has been an important growth driver. Now to our cash capital expenditure, which was $75.9 billion in Q3. This is primarily related to AWS and AI, as we invest to support strong customer demand. We continue to invest heavily, especially in AI, because we believe this is a massive opportunity that can deliver long-term revenue and free cash flow as well as return on invested capital. Finally, I'll close with Q4 financial guidance. Q4 net sales are expected to be between $240 billion and $247 billion. Based on current exchange rates, we estimate the year-over-year impact of currency changes will be a headwind of about 60 basis points this quarter. Q4 operating income is expected to be between $28.5 billion and $33.5 billion. I'll mention one factor affecting Q4 guidance. Commercial service for Amazon Leo is on track to begin offering initial service this year, and we expect to begin capitalizing some costs, including production and launch costs, in Q1 next year. This is later than I previously predicted on prior earnings calls. As a result, we will continue to expense most Leo-related costs in Q4. We are ready to serve customers this holiday season and support the millions of customers building on AWS. I want to thank teams across Amazon.com, Inc. for their hard work and customer-obsessed focus. Our commitment to improving the customer experience remains the only reliable path to creating long-term shareholder value. With that, let's move to the Q&A session. Q&A session (1) Q1 BofA Securities analyst Justin Post Question: Andy, great to see cloud continue to accelerate, excellent. But sequential growth slowed a bit, and I wanted to understand whether there are factors on the customer side or in token costs? And Brian, what is the impact of fuel costs on Q4 guidance? Andrew Jassy response: Okay, let me start with the growth question. We are very pleased with this growth 39.3% growth on a business with a $184 billion annualized revenue run rate is quite rare. It's our fastest growth in nearly five years and the sixth consecutive quarter of acceleration. We are also adding substantial capacity. I think if you look at what's driving growth right now, it's a combination of factors. First, on AI, we have an extraordinary full stack of capabilities whether you're building your own models with SageMaker AI (the easiest way to build your own models), or want to use leading frontier models with high security and highly competitive price-performance, you can use Bedrock. Whether you're building your own agents (we offer capabilities such as Strands and AgentCore to build and run them securely and at scale), or using off-the-shelf agents (the choice of most companies), just look at Kiro (coding), Connect (contact center), Transform (migration) and Quick (our fast-growing AI work companion) the speed at which people are adopting these is very fast. We add substantial capacity every quarter. The capacity added each quarter varies. But if you look at the capacity we've added this year and our plans for roughly the next 8 quarters (we typically have visibility 8 to 10 quarters out), we have a lot of capacity coming. On top of that, add the impact of chips. We are very well positioned in the AI wave because it is increasingly true that most customers every customer using AI at scale especially enterprises now deploying inference at scale in production, are extremely eager to save on price-performance and training, and Trainium's significant price-performance advantage over alternatives is highly attractive. As more and more people use AI in very broad ways, this drives substantial demand for core capabilities such as reinforcement learning, post-training and tool use, and we have the leading CPU chip, Graviton, with about 30% to 40% better price-performance than other x86 providers. These factors are truly driving very significant growth. The capacity we add each quarter will vary, but at this scale, forecasting more than 40% year-over-year growth in each of 2027 and 2028 is significant, and we believe this can become a $1 trillion revenue business within 5 to 10 years an extraordinary, rare opportunity that we are very excited to pursue. Brian Olsavsky added: Justin, on the fuel and line-haul inflation question, I don't have an exact number, but Q4 will be higher than Q3. Remember we introduced a fuel surcharge for FBA sellers earlier this year, recovering some (but not all) of the fuel costs we saw on those shipments and on retail inbound and outbound freight for remaining partners. So it's included and slightly higher than Q3. (2) Q2 Morgan Stanley analyst Brian Nowak Question: I have two questions. Andy, your enthusiasm for AWS has come through on the call. You rarely make statements like "$1 trillion revenue within 5 to 10 years," which is beyond the usual range. Could you walk through how you get to that $1 trillion? Is it top-down or bottom-up? What gives you confidence that you can deliver this kind of revenue growth and reach that number within 5 to 10 years? Second question, on robotics, looking ahead to 2027, what key milestones are you focused on in retail robotics? Andrew Jassy response: On AWS, Brian, just look at the growth rate look at the run-rate growth, then look at our forecasts for 2027 and 2028. As I've said many times, no matter how much capacity we offer, the large blocks of capacity customers take (hundreds of megawatts, sometimes up to 1 gigawatt) are reserved in advance, because you can't leave 1 gigawatt of capacity idle. So we have very clear visibility into these large capacity needs for 2027 and 2028 and some of 2029. We will always reserve a meaningful portion of capacity for on-demand use on EC2 or Bedrock, and we work closely with customers to ensure they have ample capacity available in AWS. But we have very clear visibility into what AWS will look like over the next few years, and when we run the math on revenue and the existing run rate, these growth rates quickly push the numbers up. On top of that, I don't think much of the usage we see today will decay soon. Enterprises are still really early in broadly deploying inference in production. Partly because enterprises need enough people who know how to operate AI, do post-training and fine-tune models for the right applications; partly because of inference costs. I think if we want enterprises to use inference the way we believe they will, we must keep working to lower inference costs. This is a major mission for AWS and one of the important reasons we build our own custom chips and Trainium we strongly believe it is extremely important to let customers use inference more economically. Inference costs have fallen substantially over the past two years, and I think they will fall substantially further. Then think about what you're seeing. Take security as an example on its own, models are now so advanced that the vulnerabilities they find are ones humans never noticed. If you can use these models, you can use them to find vulnerabilities and ultimately help patch and deploy. Some believe that a meaningful portion of total tokens consumed in the next year or two could ultimately be for security, a relatively new use case layered on top of the coding growth we see and various AI companions (in consumer and work spaces, such as Quick). These are just the first few large use cases. Add to that the enterprise trend you'll see I believe nearly every modern enterprise's production applications will be rewritten to be agentic, because if you want to move fast, or want to guard against some security risks in the right way, you have to deploy this way. The AI wave is simply too big. So you can't predict precisely over the next 5 to 10 years, especially with these kinds of growth rates, but for us it's not a stretch to imagine this could become a business of more than $1 trillion. On robotics, what I'd say is that what's happening in robotics right now is quite remarkable in general, and especially at Amazon.com, Inc. We now have more than 1 million robots in our fulfillment network. They have had a very significant impact on our cost structure, productivity and safety look at the safety data in our fulfillment network, already at historic lows. We've made enormous progress over the past four or five years, and robotics is an important part of that. But I'd say we are still early, both in terms of what we've built and deployed and what we're developing. I think you'll see that our fulfillment centers will always have a large number of employees. But I think a lot of the more repetitive work currently done by humans will be done by robots. We are investing in robots of various form factors. We also have an opportunity to help with "the last 100 yards" of delivery to customer stores. We have a lot coming. For us, the measure of robotics is: does it deliver equal or better productivity, safety, cost structure and delivery time. When the economics work, we deploy at scale in the fulfillment network. If you look at the new designs coming to our fulfillment network including the expansion of same-day facilities they invest heavily in robotics. So we think robotics has already had a huge impact, and this is just the tip of the iceberg compared with the next five years. (3) Q3 Evercore ISI analyst Mark Mahaney Question: Two things. First, thank you very much for the AWS growth outlook. Could you also give an outlook on margins? I know margins will fluctuate quarter to quarter, but over the next two years, do you think the current margin structure is relatively stable? Will we stay at AWS operating margins in the 30s, around 40%? Also on fresh checkout, I'm super excited to see this opportunity rolling out in my community and elsewhere. How big is your fresh checkout coverage? In other words, how many Prime households do you think you cover? For customers who have used it, how much do you think it lifts spending per Prime household? Is it 20%, 50% or 100%? Given how large the fresh grocery category is? Brian Olsavsky response: Mark, let me start with the AWS operating margin outlook. We don't guide AWS margins. But I can give you my