Let's discuss the "flaws that don't overshadow the merits" of Amazon's Q3 earnings report. The report itself is actually quite good, but there are some flaws in the current market environment. First, the flaws: 1) Revenue was slightly below expectations, largely because Prime Day fell earlier in most of the company's key markets this year, in the second quarter, while it was in the third quarter last year. Net profit was $20.69 billion, lower than $21.19 billion in the same period last year; diluted EPS was $1.89, a 3% year-over-year decrease. This year-over-year decline is largely related to the high base effect of non-operating factors in the same period last year—Amazon recognized $9.5 billion in pre-tax gains in Q3 2025 due to its Anthropic investment, while there was no similar gain in the same period this year. Advertising performance in Q3 was below expectations. The company stated that advertising revenue was affected by factors such as the timing of Prime Day and expects year-over-year growth in advertising revenue to rebound to the high double digits in Q4. If this guidance comes true, the slowdown in advertising growth in Q3 may be more of a timing-based disruption than a structural slowdown in the advertising business. 2) The Market's Biggest Fear: AI Capital Expenditure Becomes the Core of Stock Price Pressure: The significant negative turn in free cash flow and capital expenditure are the key factors triggering the negative market reaction to this earnings report. Amazon's Q3 capital expenditures reached a staggering $77.26 billion, approximately 1.2 times that of the same period last year, exceeding market expectations by over 34%. Free cash flow recorded negative values for the second consecutive quarter, turning from an inflow of $14.79 billion in the same period last year to an outflow of $42.36 billion, a much larger outflow than in Q2. The company maintained its full-year 2026 cash capital expenditure guidance of approximately $220 billion, without signaling a slowdown in AI investment. 3) No Surprises in Next Quarter Guidance: Amazon's Q4 guidance was generally close to Wall Street expectations. The company expects Q4 net sales to be between $240 billion and $247 billion, representing year-over-year growth of 12% to 16%. The midpoint of this revenue range is $243.5 billion, slightly lower than analysts' expectations of $244.52 billion, but within the guidance range. Amazon projects fourth-quarter operating profit of $28.5 billion to $33.5 billion, while market expectations are around $33.1 billion. In other words, the upper limit of the company's guidance is only slightly above consensus expectations, while the midpoint of $31 billion is below expectations. Highlights: 1) Amazon's third-quarter operating profit was $28.08 billion, a significant increase of 61% from $17.42 billion in the same period last year, with the operating profit margin rising from 9.7% to 13.9%. 2) The biggest highlight of the earnings report remains AWS. Third-quarter AWS net sales increased by 39.3% year-over-year to $45.98 billion, 1.3% higher than analysts' expectations, marking the highest quarterly growth rate in nearly five years. Annualized revenue turnover at the end of the quarter reached $184 billion, an 8.9% increase compared to the end of the second quarter. In summary, Amazon's third-quarter revenue and EPS slightly missed expectations, advertising revenue was slightly below expectations, the fourth-quarter profit guidance was weak at the midpoint, while capital expenditures significantly exceeded expectations and the full-year AI investment plan remained high. AWS's strong growth and record-high operating profit margin were highlights of the financial report, but in the current market environment, investors are more concerned about whether AI investment will continue to depress free cash flow and whether high capital expenditures can translate into sufficiently high profits and cash returns within the foreseeable future. Therefore, the stock price weakened in after-hours trading. How should we interpret Amazon's financial report? From a personal perspective, "flaws don't overshadow the merits." The key is to look at growth potential. Everyone is aware of the cash burn, but the market is unclear about the stage AWS and Amazon can grow to. However, this Q3 financial report and conference call actually offer a glimpse into that future scenario. 1) CEO Andy Jassy described AWS's current growth logic as a self-reinforcing "flywheel": leading features and security attract customers to migrate to the cloud, centralized data and applications in the cloud drive AI inference demand, AI inference in turn drives core computing, storage, and network consumption, thereby prompting AWS to continue reinvesting in its basic functions. In response to a question from Goldman Sachs, Jassy believes that in the future there will be multiple models with similar capabilities suitable for different tasks, which enterprises will combine in the same application and switch as price and performance change. He believes Bedrock has the potential to grow to the same service scale as EC2. There is more solid evidence of demand from ordinary enterprises. Fortune 500 companies' spending on Bedrock is nearly 7 times that of the same period last year, indicating a significant expansion in actual consumption by large enterprises; Bedrock's overall token usage is nearly 17 times that of the same period last year, and the number of agents deployed in Q3 is approximately twice the total of the previous three quarters. These also indicate rapid growth in inference call scale, further expanding the scope of enterprises building and running agents. 2) Outsourcing of self-developed chips may be a new highlight. In Q3 alone, customers using Amazon's custom chips (Graviton and Trainium) saved more than $2 billion. Revenue commitments for Trainium and Graviton increased more than 20 times year-over-year. Jassy revealed: Due to such strong demand for Trainium, customers are constantly encouraging us to offer it outside of AWS, and we intend to do so in late 2027. 3) AWS Revenue Expectations for the Next Two Years Jassy also projects AWS will grow at a rate exceeding 40% in both 2027 and 2028, and is expected to achieve annual revenue exceeding $1 trillion within the next five to ten years. Meanwhile, the company's order backlog reaches $578 billion, representing triple-digit year-on-year growth. According to Jassy, AWS's annualized revenue in the third quarter was $184 billion. If growth rates exceed 40% in both 2027 and 2028, even at the minimum of 40%, AWS's revenue in 2028 would exceed $360 billion. 4) Unwavering Commitment to Cash Burn The market is concerned about Amazon's capital expenditures, but the company officially expects this spending to "increase significantly" in 2027. Faced with this rate of cash burn, Jassy's stance is exceptionally firm. He clearly stated that this is a strategy to build a long-term platform, not a short-term rental of data centers. The original quote was: "AI is a once-in-a-lifetime opportunity; it's the biggest technological revolution of our lifetime. If we can maintain a business with $184 billion in annual revenue growing at over 40% for two consecutive years and eventually reach a trillion dollars, we must invest to maintain our leadership." Jassy's statement in the conference call illustrates the significance of this gamble: "We have the capacity to fund this initiative, and I believe it will forever change the scale of Amazon, forever change our revenue and free cash flow."