Though Amazon had a huge cloud infrastructure through Amazon Web Services (AWS), investors weren’t excited about the company. However, the narrative shifted when the company posted strong September quarter earnings.

A deal with OpenAI and a ramp-up in its capital expenditure signalled that Amazon was back in the AI race. AI is just one of Amazon’s many concerns. How it manages its mammoth retail operations amid regulatory pressures matters too.

Market catch-up

In the past few years, post-covid and during the AI boom, Amazon was an outlier among the Big Five tech companies, but for the wrong reasons. In the past five years, Amazon shares gained 51%, while its peers doubled or tripled their market value.

As Nvidia boomed on the demand for graphics processing units (GPUs) and Microsoft captured headlines with its OpenAI tie-up, investors were concerned that AWS, a cloud leader and Amazon’s key division, was struggling to scale.

Amazon was spending heavily on AI infrastructure but was losing share to Microsoft and Google. In the second quarter of 2025, AWS’s profit margins fell sharply.

The picture changed after Amazon’s third-quarter earnings on 30 October 2025. Results exceeded expectations, and shares jumped 13% in after-hours trading.

“There was definitely concern about AWS losing market share to Microsoft Azure and Google Cloud,” Argent Capital’s Jed Ellerbroek told Reuters. “But now AWS is aboard the train as well.” In the past five days, Amazon was the only Big Five stock to post gains, while the others declined.

AWS revival

In the September quarter, AWS reported revenues of $33 billion, up 20.2% from $27.5 billion in Q3 2024. It outpaced the segment’s 19% growth in Q3 2024 and exceeded Wall Street’s 18.1% forecast. The results lifted AWS’s annualized run rate to $132 billion.

During the earnings call, CEO Andy Jassy highlighted that the division was “growing at a pace we haven’t seen since 2022,” attributing this to “strong demand in AI and machine learning.”

It addressed investors’ concerns that AWS—which holds about 31% of global cloud infrastructure, according to recent Synergy Research data—might be struggling to manage scale.

It could also leverage other changes in the market, such as the friction between Microsoft and its long-standing partner OpenAI. Earlier this week, Amazon signed a $38 billion cloud agreement with OpenAI.

The deal could increase its $200 billion backlog by about 20% in the fourth quarter, according to BMO Capital Markets. It also gave AWS a clearer path to recover market share lost to Microsoft and Alphabet.

Capital push

To sustain growth, Amazon has to sustain capital spending. In Q3 2025, its capex hit $35.1 billion, or 19.5% of revenue, up from 14.8% in Q4 2024. This ratio has climbed steadily: 16.1% in Q1 2025 and 19.2% in Q2.

It raised full-year capital expenditure guidance to about $125 billion, with most of the funds going to AWS data centres that support AI workloads. Spending is expected to rise further in 2026.

That level of investment places Amazon among the largest spenders in the technology sector. However, higher investments in AI infrastructure add to financial strain.

Throughout its history, Amazon has pursued growth through efficiency, reflected in its founder’s philosophy: Your margin is my opportunity. A substantial share of its budget is directed toward in-house technologies like Trainium chips, reducing reliance on third-party GPUs.

Amazon says its own chips provide 30–40% better price-performance than comparable GPUs. Customers like Anthropic are deploying hundreds of thousands of Trainium2 chips for models like Claude. Adoption is growing, but it still trails Nvidia.

Labour rebalance

In the recent quarter, Amazon reported a $1.8 billion pre-tax charge for severance related to planned job cuts, reflecting one of its largest corporate restructurings in years. The layoffs, affecting about 14,000 employees, were announced shortly before the earnings release.

During the earnings call, Jassy said the cuts were not AI-driven. “If you grow as fast as we did for several years, the size of businesses, the number of people, the number of locations, the types of businesses you’re in, you end up with a lot more people than what you had before, and you end up with a lot more layers,” he said.

“Sometimes, without realizing it, you can weaken the ownership of the people doing the actual work. And it can slow you down.”

While Jassy has emphasized culture, the broader context is a shift toward automation across Amazon’s operations. The company aims to automate 75% of its fulfillment network and has deployed more than one million robots globally.

These investments suggest a gradual substitution of capital for labour. Amazon’s workforce totalled 1.56 million in 2024, roughly unchanged from two years earlier despite higher sales and output, but down from 1.6 million in the covid-hit 2021.

Store strategy

Correcting for covid-era overhiring is not the only reset Amazon is undertaking. In physical retail, Amazon is scaling back its direct grocery experiment. The company said it was closing all 14 Amazon Fresh stores in the UK, signalling a retreat from a model that failed to gain traction.

The focus is shifting to Whole Foods, where Amazon plans to expand locations and pilot a smaller ‘daily shop’ format designed for urban markets. It is also redirecting grocery efforts toward logistics, emphasizing same-day perishables delivery through Amazon.com.

That service now reaches 1,000 US cities and is expected to double coverage by the end of 2025. Physical store revenue has remained steady at about $5.6 billion per quarter.

As it experiments and expands its business, Amazon is also regularly facing regulatory and legal hurdles. It settled a Federal Trade Commission (FTC) complaint over Prime subscriptions with a $2.5 billion charge, which includes $1 billion in penalties and $1.5 billion in refunds.

A separate antitrust lawsuit from the FTC and 18 states remains pending, with a trial expected in 2027. All these challenges will test the sustainability of Amazon’s business bets.

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