Q3 TrendsSuggest Amazon Will Rise on Oct. 29 But That’s Not Why I’m Buying

Alex Sirois Thu, October 22, 2026 at 3:06 AM UTC

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David Ryder / Getty Images (David Ryder / Getty Images)Amazon reports Q3 earnings on Oct. 29, and history says the stock pops. But the earnings beat is the least interesting part of the investment case right now.Quick Read -

Editor's Note: This article has been to reflect the fact that Amazon's planned 2026 Capex is $220 billion, not $200 billion.

AWS growth accelerated from 20% to 37% in four quarters, backed by a $496 billion backlog that management believes could become a trillion-dollar annual business for Amazon.

Amazon's 43% operating income growth dwarfs Microsoft's 18%, and unlike Alphabet, it funded its AI expansion without suspending buybacks or doubling long-term debt.

Free cash flow sits at -$7.6 billion on $220 billion in planned 2026 capex, but contracted data centers break even in under three years.

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I keep following Amazon (NASDAQ:AMZN), and with third-quarter results due Oct. 29, the stock is back in focus. Amazon beat Q3 EPS estimates in 2023, 2024, and 2025, and the stock rose 6.83%, 6.19%, and 9.58% on those earnings days. I count that run as a bonus. My real reason sits inside AWS.

AWS Is Reaccelerating, and I Want to Own That Curve

AWS growth went from 20% in Q3 2025 to 24%, then 28%, then 37% in Q2 2026. That quarter delivered $42.23 billion in revenue at a 39.4% operating margin. The backlog stands at $496 billion, growing triple digits. The AI and chips businesses each run above $25 billion annually. Management says AWS could "very possibly be a trillion dollar annual revenue business for us in time." That compounding engine supports the long-term investment case.

Three Data Points Behind the Amazon Thesis

First, growth is broadening. Q2 revenue hit $200.61 billion, up 19.62%, while operating income rose 43.24% to $27.46 billion. Advertising alone brought in $19.81 billion, up 26%.

Second, its financial position can support the expansion. The debt-to-equity ratio sits at 0.37, interest coverage at 35.17, and cash at $78.21 billion.

Third, the long record rewards patience. Shares gained 540.91% over ten years. Amazon pays no dividend, so reinvested profits do the compounding.

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How Amazon Stacks Up Against Microsoft and Alphabet

Microsoft (NASDAQ:MSFT) trades at a lower P/E of 30 against Amazon's 36. Its latest-quarter operating income grew 18.3%, while Amazon's grew 43.24%. Amazon's premium reflects faster profit growth.

Alphabet (NASDAQ:GOOGL) looks cheap at 15 times earnings. To fund its AI buildout, though, it raised roughly $70 billion in equity and debt, suspended buybacks, and lifted long-term debt from $46.5 billion to $98.2 billion. I prefer Amazon's net debt to EBITDA of 0.45 and no share issuance on that scale.

Risk That Could Actually Hurt Me

Free cash flow turned negative at -$7.6 billion on a trailing basis, and Amazon plans about $220 billion in 2026 capex (all of which has to be powered, cooled, and connected by somebody, which is the whole point of our free report on seven suppliers behind the AI buildout). The P/FCF ratio of 367.88 shows it. Reported earnings also include a $53.4 billion Anthropic gain; adjusted EPS came in at $1.88 versus a $1.83 estimate. Jassy admits Amazon will "encounter free cash flow headwinds until these data centers come online."

I accept that because servers break even in a little less than three years, last five to six years, and most AI capacity is contracted for at least five-year terms. Most of 2027 capacity is already reserved.

Why AWS Momentum Matters Into Earnings

Jassy notes 85% of global IT spending still sits on-premises. Q3 guidance calls for operating income of $22.5 billion to $26.5 billion versus $17.4 billion a year ago. Oct. 29 will show whether AWS keeps compounding.

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Source: “AOL Money”