Wall Street Sold Amazon Into Earnings Week. Its $496 Billion Order Book Didn't Budge.

Research Desk · October 26, 2026

Amazon.com, Inc. logo, via Wikimedia Commons. Trademark of Amazon.com, Inc., used for editorial identification.

Last Monday, Morgan Stanley named Amazon a top pick and raised its price target to $350. The stock jumped about 5% in a single session.

By Friday, every bit of that gain was gone. A Thursday rout in AI stocks, followed by oil climbing to its highest level in more than four years, dragged the shares back to $248.

Friday was ugly well beyond tech. The Dow dropped 652 points, and nearly three out of every four stocks in the S&P 500 fell.

Now Amazon walks into the most crowded week of the earnings calendar. The Federal Reserve meets Tuesday and Wednesday. Microsoft and Alphabet report Wednesday. Amazon reports Thursday.

The market is nervous about one thing above all: how much the tech giants are spending on AI. Amazon is one of the biggest spenders. It is also one of the companies best placed to get paid for it.

Two Businesses Under One Name

Most people know Amazon as the boxes on the porch. That business is enormous, but it is not where most of the profit comes from.

The profit engine is Amazon Web Services. AWS rents out computing power, storage and AI tools to other companies, from small startups to banks and government agencies.

Think of it as a landlord for the digital economy. A business that once had to buy and run its own server room now rents space in Amazon's buildings, by the hour, and pays a monthly bill.

Netflix streaming a movie, a hospital storing patient records, an AI lab training a new model: a large share of that work runs on rented Amazon machines.

Last quarter AWS brought in $42.2 billion of revenue. It was the fifth straight quarter that growth sped up, climbing from 17% a year earlier to 37% now.

$496 Billion Already Signed

The number that matters most going into Thursday is not revenue. It is the backlog.

AWS reported $496 billion in signed commitments last quarter, and that figure was growing at a triple-digit rate. These are contracts customers have already agreed to pay over the coming years.

Picture a restaurant with every table booked two years out. The question is no longer whether diners will show up. It is how fast the kitchen can expand to seat them.

That is Amazon's situation. Management has said demand for AI capacity is running ahead of supply. AWS's AI business and its in-house chip business each passed a $25 billion annual run rate, more than double a year ago.

The company as a whole is not standing still either. Second-quarter sales topped $200 billion for the first time, up 20%, and operating income rose 43% to $27.5 billion.

The Bill Comes Due Before the Revenue

Here is the blemish, and it is a real one. To serve that backlog, Amazon has to build first and collect later.

In July the company raised its 2026 capital spending plan to roughly $220 billion, up from about $200 billion, citing higher memory chip costs. That spending pushed trailing free cash flow to a negative $7.6 billion.

For a mature company, that would be alarming. For Amazon, it is a choice. But it means the company is asking investors to trust that today's concrete and chips turn into tomorrow's cash.

There is also concentration risk. By one analyst's estimate, nearly half of the AWS backlog is tied to two AI customers, Anthropic and OpenAI, both of which Amazon has also invested in.

And last quarter's headline profit needs an asterisk. Net income of $62.6 billion included about $53.4 billion of gains on Amazon's Anthropic stake, not money earned from selling anything.

Why $100 Oil Hits Amazon, and What It Is Doing About It

The retail side faces its own squeeze. Amazon runs one of the largest delivery fleets in the country, so fuel at $100 a barrel lands directly on its costs.

Shoppers are feeling it too. Consumer sentiment slipped near a record low in October as higher prices tied to the Middle East conflict soured household moods.

Amazon's answer is automation. It expects to more than double its fleet of robotic arms this year, a move aimed at offsetting fuel inflation and higher trucking rates.

That matters because the retail segments still run on thin margins. North America earned 7.9% last quarter and international just 4.1%. Every point of cost saved there is real money.

What Thursday Has to Show

Amazon guided third-quarter sales of $197 billion to $202 billion and operating income of $22.5 billion to $26.5 billion. Wall Street expects earnings near $1.97 a share.

The sales guide looks soft next to last quarter's 20% growth. Most of that is calendar noise: Prime Day moved into the second quarter this year, pulling sales forward.

Analysts expect AWS growth of 30% to 35%. The real tell will be whether the backlog keeps climbing and whether management lifts the spending plan again for 2027.

A bigger spending plan with faster AWS growth has been rewarded before. When Amazon raised its budget by $20 billion in July, the stock rallied to a record close within days. A bigger budget with slowing growth would be a different story.

The Price, and the Bear Case With a Number

At $248, Amazon is valued at about $2.68 trillion. That is roughly 31 times this year's expected earnings and about 23 times next year's, when analysts expect profit to grow by roughly 32%.

The average analyst price target sits near $330, about 33% above Friday's close. Of 56 analysts tracked by one service, 47 rate it a strong buy.

The bear case is straightforward. If AI demand cools before the data centers pay off, Amazon is left holding a very expensive building program and negative cash flow.

The stock's 52-week low is $196, about 21% below today's price. That is a reasonable marker for how far a disappointment could take it.

One more thing for income investors: Amazon pays no dividend. This is a growth holding, not a check in the mail, and it should be sized that way.

The Bottom Line

The market spent last week worrying that the tech giants are spending too much on AI. For Amazon, much of that spending lands in its own cloud business, which is growing faster than at any point in four and a half years.

The shares have pulled back to where they started the month, while the backlog has not gone anywhere. Thursday will show whether the build-out is turning into revenue fast enough.

For a long-term investor who already owns the household name, a pullback before earnings is not a warning sign. It is the price of admission to the one company that runs both the store and the landlord's building.