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AWS Back at 20%: Did GenAI Just Win the Cloud War for Amazon?
AWS re-acceleration to 20.2% YoY growth, a massive Anthropic investment gain, AI integration across retail, and soaring advertising revenue underscore a strategic, high-stakes shift.
By the numbers:
Net Sales: $180.2 billion (up 13% year-over-year)
AWS Sales Growth: 20% year-over-year
Diluted EPS: $1.95 (up from $1.43 in Q3 2024)
Adjusted Operating Income: $21.7 billion (excluding $4.3B in special charges)
Free Cash Flow (TTM): $14.8 billion (down from $47.7 billion in Q3 2024)
Key Highlights:
AWS re-accelerated its growth to 20.2% year-over-year, the fastest pace since 2022, fueled by strong demand for AI and core cloud infrastructure.
Net income was significantly boosted by a $9.5 billion pre-tax gain from Amazon's investment in Anthropic, PBC.
The company is aggressively expanding its AI capacity, adding 3.8 gigawatts of power in the past 12 months and launching a cluster with nearly 500,000 Trainium2 chips.
Retail efficiency gains are visible through fulfillment network innovation and the AI-powered assistant 'Rufus,' which is associated with shoppers being 60% more likely to complete a purchase.
Operating income was flat year-over-year at $17.4 billion, reflecting $4.3 billion in special charges for a legal settlement and severance costs.
The News
Amazon.com, Inc. announced strong financial results for its third quarter ended September 30, 2025, with net sales increasing 13% to $180.2 billion. The star performer was AWS, which re-accelerated its year-over-year growth to 20.2%. Net income rose sharply to $21.2 billion, significantly aided by a $9.5 billion pre-tax gain from the Anthropic investment. However, operating income of $17.4 billion included $4.3 billion in special charges, obscuring underlying operational improvements. For more information, see the full earnings release here.
Analyst Take: A New Era of High-Stakes Investment
Amazon's third quarter of 2025 financial results mark an essential turning point, not simply for the strong performance, but for the clarity it provides into the company’s AI-driven, high-capital-intensity future. Our analysis of the announcement reveals a company in the middle of a strategic transformation, where the traditional growth pillars of e-commerce and cloud computing are being radically remade by a massive, all-in bet on artificial intelligence.
The re-acceleration of AWS growth to 20.2% is the headline most investors (and competitors) will fixate on. It’s a powerful signal that AWS is effectively converting early customer excitement over generative AI into tangible revenue. Andy Jassy, Amazon’s CEO, comments about seeing demand in both AI and core infrastructure confirms that customers are still migrating to the cloud for foundational workloads, even as they ramp up AI spending.
It’s a re-emphasis of the cloud as the primary platform for digital transformation, now supercharged by generative AI. The commitment to accelerate capacity, evidenced by 3.8 gigawatts of power added in the last year, paints the picture of a company building out its cloud business to act less like a software platform and more like a global utility for the AI age. The massive year-over-year increase in capital expenditure, which drove trailing twelve months free cash flow down significantly, is the logical and necessary consequence of this high-stakes infrastructure play.
The strategic vertical integration around AI is undeniable. The Trainium2 custom AI chip is a fully subscribed, multi-billion-dollar business that grew 150% quarter-over-quarter. Its integration into "Project Rainier," a massive compute cluster of nearly 500,000 chips designed to build and deploy Anthropic’s Claude models, is a masterclass in platform leverage. This capability, coupled with the introduction of new EC2 instances utilizing NVIDIA Grace Blackwell Superchips, Graviton4 chips, and custom Intel Xeon 6 processors, aims to deliver a competitive edge across the entire spectrum of cloud computing, from training the largest models to general-purpose workloads.
On the retail side, Amazon's narrative is one of AI-powered fulfillment efficiency and agentic commerce. The fulfillment network is innovating at a pace that should allow for the fastest Prime member delivery speeds ever, demonstrating a commitment to solving the last-mile challenge that competitors struggle with.
Crucially, AI is now becoming the core customer-facing experience. The AI assistant 'Rufus' has seen usage by 250 million customers, and the fact that its users are 60% more likely to complete a purchase underscores its potential to directly impact conversion rates and revenue. Similarly, the Advertising Services segment, a high-margin powerhouse, saw an increase in revenue, which is inherently linked to the improved targeting and engagement offered by its AI models.
The reported net income was stellar, largely thanks to the $9.5 billion pre-tax gain from the Anthropic investment. While this is a financial footnote and not an operational result, it is a testament to the value created by Amazon’s ecosystem-building strategy through strategic venture investing. The special charges (a $2.5 billion legal settlement and $1.8 billion in severance) are one-time hits that, when excluded, show a much stronger underlying operating income of $21.7 billion. The severance costs align with the CEO’s desire for a faster, flatter organization, which we view as a proactive recalibration for the coming age of automation and AI-driven efficiency.
What was Announced
Amazon's third quarter was packed with technical and platform enhancements, all designed to solidify its leadership in the AI and cloud space:
Project Rainier: A massive AI compute cluster architected to deploy and train Anthropic’s leading Claude AI models, containing nearly 500,000 Trainium2 chips.
Trainium2 Adoption: Amazon’s custom AI chip is now a fully subscribed, multi-billion-dollar business, demonstrating 150% quarter-over-quarter growth.
Next-Generation EC2 Instances: This includes new EC2 P6e-GB200 UltraServers using NVIDIA Grace Blackwell Superchips for large-scale AI models, new general-purpose instances with AWS Graviton4 chips, and custom Intel Xeon 6 processors for heavy computing tasks.
Amazon Bedrock Expansion: Added a leading selection of foundation models, including open weight models from OpenAI, DeepSeek-V3.1, and Qwen3, along with Anthropic’s new Claude Sonnet 4.5, Claude Opus 4.1, and Claude Haiku 4.5.
AgentCore: Announced general availability of this set of infrastructure building blocks, designed for developers and companies to build secure, scalable AI agents.
Quick Suite: A new agentic AI app that acts as an AI teammate for employees, connecting to business data and applications, and aims to deliver substantial time and cost savings on complex tasks.
Nova Multimodal Embeddings: Released as the first unified model designed to enable search results with leading accuracy across text, documents, images, video, and audio.
Alexa+ Expansion: The next-generation assistant is rolling out with a two times higher customer engagement rate and is launching on four new AI-powered Echo devices and the new Fire TV lineup.
Financial Highlights
The third quarter of 2025 delivered strong top-line growth, with Net Sales increasing 13% year-over-year to $180.2 billion. This performance was underpinned by the continued strength of the AWS and Advertising segments.
However, the reported operating income of $17.4 billion, which was flat compared to the prior year, requires critical scrutiny. This figure was directly impacted by $4.3 billion in special, one-time charges, comprising a $2.5 billion legal settlement with the Federal Trade Commission (FTC) and $1.8 billion in estimated severance costs related to planned role eliminations. Excluding these charges, the company's underlying operating income would have reached a robust $21.7 billion, signaling strong core profitability across the enterprise.
Net income saw a significant jump to $21.2 billion, or $1.95 per diluted share, up from $15.3 billion in Q3 2024. This substantial increase was heavily influenced by a $9.5 billion pre-tax gain recorded from Amazon’s investment in Anthropic, PBC, classified under non-operating income. While operating cash flow for the trailing twelve months grew 16% to $130.7 billion, the company’s Free Cash Flow for the TTM period saw a sharp decrease to $14.8 billion from $47.7 billion a year ago.
This plunge directly reflects the strategic, large-scale investment in capital expenditures, specifically a $50.9 billion year-over-year increase in purchases of property and equipment, net of proceeds from sales and incentives, which is largely directed toward building out AI and cloud infrastructure.
Looking Ahead
Based on what we are observing, Amazon is no longer simply an e-commerce giant with a cloud division; it is an AI-infrastructure superpower that is systematically integrating its core technology into every facet of its consumer and enterprise business. The sheer scale of the capital expenditure, particularly on data center power capacity, more than any other cloud provider, is a clear signal that the company views the current environment as a generational investment opportunity. They are building the foundation for the next decade of cloud and consumer computing.
The key trend that we are going to be tracking is the conversion rate of this massive AI capacity investment into durable operational margin. The decline in free cash flow is a short-term side effect of a long-term strategic necessity. Based on our analysis of the market, my perspective is that Amazon is pulling ahead in the "GenAI race" by focusing on the underlying utility, the Trainium2 silicon, the power, and the foundational models, which creates a strong moat.
Going forward, we are going to be looking for how the company performs on the North America segment's adjusted operating margin, which needs to consistently exceed prior highs as AI-driven efficiency from Rufus, generative seller tools, and fulfillment optimization takes hold. When you look at the market as a whole, Amazon’s Q3 earnings confirm that the competitive battleground has shifted from raw cloud migration to AI platform utility and agentic commerce. HyperFRAME will be closely monitoring how the company successfully scales its Trainium-powered Trainium2 custom chip business and how much of its impressive backlog is specifically driven by AI workloads in future quarters. The execution here is everything.
Steven Dickens | CEO HyperFRAME Research
Regarded as a luminary at the intersection of technology and business transformation, Steven Dickens is the CEO and Principal Analyst at HyperFRAME Research.
Ranked consistently among the Top 10 Analysts by AR Insights and a contributor to Forbes, Steven's expert perspectives are sought after by tier one media outlets such as The Wall Street Journal and CNBC, and he is a regular on TV networks including the Schwab Network and Bloomberg.
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Harvy James Espellarga | Analyst In Residence - FinOps and Earnings Coverage
Harvy James Espellarga is a financial analyst with a proven track record of analysing the financial performance of tech companies. He brings a deep understanding of accountancy principles and specializes in FinOps, helping organizations optimize their cloud spending and maximize ROI. His insightful analyses have been featured in publications like Seeking Alpha, where he provides expert commentary on performance and operational strategies for tech companies. He also previously contributed to cutting-edge research on emerging industry trends at The Futurum Group, supporting leading research directors.