What Could Derail Amazon Stock?
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Amazon.com (AMZN) stock returned 6.7% over the year to November 4, 2026, against 14.9% for the S&P 500. Holders waiting for the stock to catch up may be counting on AWS, Amazon’s cloud business, which grew at its fastest pace in nearly five years in the third quarter. Yet on the October 29 call, management also pointed to pressure on the cloud’s margins. Where does that pressure come from?
Amazon Says Its AI Sales Carry Lower Margins
The pressure comes from the AI business inside AWS. Asked about AWS margins over the next two years on the October 29 call, management said the outsized growth of AI puts margin pressure on the business as a whole, because AI earns lower margins. AI is also growing faster than the rest. Management said AI revenue was growing at triple digits from a year earlier, while AWS as a whole grew 39.3% in the third quarter.
On the same call, management named a second squeeze from component pricing headwinds, which it said it cannot predict. It also expects AWS margins to move around, partly with how much the company is investing at the time. Amazon’s cash capital spending reached $75.9 billion in the third quarter, mostly for AWS and AI.
How Much Of Amazon’s Profit Comes From AWS?
Close to two-thirds came from the cloud unit in the third quarter. AWS earned $17.8 billion of Amazon’s $28.1 billion in operating income. It produced that income on $46 billion of revenue, under a quarter of the company’s $201.9 billion total, so a squeeze on AWS margins lands on most of Amazon’s profit.
AWS margins could go either way from here as AI grows. On one side, AWS posted a 38.7% operating margin in the third quarter, and management said its AI margins are rapidly improving, well ahead of where its core cloud business stood at a similar stage. On the other, management gives no guidance on AWS margins. It expects to spend meaningfully more in 2027 than the roughly $220 billion of cash capital spending it expects for 2026, the majority for AWS.
Investors pay a little more for Amazon’s sales than for the market’s. The stock trades at 3.6 times sales, against 3.2 for the S&P 500. Since late 2016, that multiple has ranged from 1.7 at the end of 2022 to 4.5 in September 2020. On November 4, the stock closed 6.3% below its high of the past year, set on August 3. The November 4 close capped a 6.1% one-day gain, as big tech stocks rallied after the midterm election results.
Should AWS Margins Worry Amazon Holders?
Yes. This looks like a real but slow risk. Management raised the issue itself, and it would show up in AWS margins over several reports rather than in one. Separately, Amazon stock has fallen further than the S&P 500 in four of the five recent market shocks. It lost 40% in the 2022 inflation shock, when the index fell 24%. In the 2025 tariff shock, it lost 26%, against 19% for the index.
The risk stays slow as long as AWS profit keeps growing along with its AI sales. AWS’s operating margin is the number to watch when Amazon next reports, expected in February 2027.
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