I’ll follow the playbook for reading a 10-Q: first the numbers (Income Statement, Balance Sheet, Cash Flow), then the narrative (MD&A, Risk Factors), and finally, the context from the earnings release and call.
1. Income Statement : “Show Me the Money”
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Revenue: $180.2 billion, up 13% year-over-year (YoY).
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Operating Income: $17.4 billion, roughly flat compared to $17.4 billion last year.
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Net Income: $21.2 billion (or $1.95 per diluted share), up 38% from $15.3 billion (or $1.43 per share) last year.
The first thing that jumps out is the difference between flat operating income and soaring net income.
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The flat operating income is misleading. The 10-Q and earnings release both call out two massive one-time charges: a $2.5 billion legal settlement with the FTC and $1.8 billion in estimated severance costs . Without these, operating income would have been $21.7 billion.
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The boost in net income came from “non-operating income,” specifically $9.5 billion in pre-tax gains from the company’s investment in AI-company Anthropic
Drivers:
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AWS (Amazon Web Services) was the star of the quarter. Revenue hit $33.0 billion, re-accelerating to 20% YoY growth. This is a huge signal that the AI-driven demand is translating to real revenue.
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North America segment sales grew 11% YoY to $106.3 billion.
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International segment sales grew 14% YoY to $40.9 billion.
2. Balance Sheet : “Strength or Stress?”
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Cash & Marketable Securities: $94.2 billion ($66.9B in cash + $27.3B in securities). This is down from $101.2 billion at the end of 2024.
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Long-Term Debt: $50.7 billion, down slightly from $52.6 billion at the end of 2024.
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Inventories: $41.5 billion. This is up 21% from $34.2 billion at the end of 2024, a jump worth noting.
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Total Stockholders’ Equity: $369.6 billion, up significantly from $286.0 billion at the end of 2024.
💡 My read:
The balance sheet is a fortress. The company is funding its massive investments from its own cash flow, not by taking on new debt. The jump in inventory is a potential yellow flag, but given the company’s focus on improving “price, selection, and convenience” ahead of the Q4 holiday season, it’s likely intentional.
3. Cash Flow : “Follow the Cash”
This is the most interesting part of the report.
Operating Cash Flow (OCF) TTM: Strong. It increased 16% to $130.7 billion for the trailing twelve months (TTM).
Free Cash Flow (FCF) TTM: This is the big story. FCF decreased to $14.8 billion for the trailing twelve months, a 69% drop from $47.7 billion in the prior-year period.
Reason: The 10-Q and earnings release are crystal clear on why: a massive, deliberate increase in capital expenditures.
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Purchases of property and equipment (CapEx), net of sales, was $115.9 billion for the TTM.
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This is a $50.9 billion increase in spending YoY.
📌 Translation:
Net income looks great, but Amazon is aggressively reinvesting every available dollar. This isn’t a sign of weakness; it’s a massive bet on AI. They are spending heavily to build the data center capacity and acquire the chips (especially their own Trainium silicon) to meet the AI demand that re-accelerated AWS’s growth .
4. MD&A : “Management’s Voice”
Here’s what management said “between the lines” in the 10-Q narrative:
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On AWS: The 20% growth “primarily reflects increased customer usage“. This confirms the growth is from consumption, not just signing new contracts.
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On Stores: Growth was “driven largely by our continued focus on price, selection, and convenience for our customers, including from our fast shipping offers”.
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On Costs: “Technology and infrastructure” costs surged 30% , which the MD&A attributes to “an increase in spending on infrastructure, including depreciation and amortization, and severance costs“. This directly supports the CapEx and restructuring story.
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On Legal/Severance: The filing explicitly calls out the $2.5 billion FTC settlement and $1.8 billion in severance as impacting operating income.
Tone:
Highly optimistic about AI-driven demand while also emphasizing “operational efficiencies” and cost control in the stores business.
5. Risk Factors — “Read the Fine Print”
The 10-Q updates the company’s risks. Here are the big ones:
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Competition: This is listed first. The company faces “intense competition” , and “new and enhanced technologies, including… artificial intelligence” are noted as increasing this competition.
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Legal & Regulatory: This is no longer a theoretical risk. The report warns that the company is “regularly subject to… claims, litigation, reviews, investigations” and specifically names the Federal Trade Commission (FTC) and state attorneys general. The $2.5 billion charge this quarter proves this risk has teeth.
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International Operations: The report calls out specific risks in China and India, where “government restricts the ownership or control of Indian companies by foreign entities”.
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AI: The company notes risks related to its “development and use of artificial intelligence” and potential infringement claims.
6. Compare to Expectations (from the Earnings Release)
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Guidance for Q4 2025 (the holiday quarter): Net Sales: Expected to be between $206.0 billion and $213.0 billion (growing 10% to 13% YoY). Operating Income: Expected to be between $21.0 billion and $26.0 billion. This is a very strong outlook, especially considering Q4 2024’s operating income was $21.2 billion.
7. Earnings Call Commentary
This is where we get the full story behind the numbers.
Andy Jassy (CEO):
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On AWS Re-acceleration: “AWS is growing at a pace we haven’t seen since 2022, re-accelerating to 20.2% year-over-year… It’s very different having 20% year-over-year growth on a $132 billion annualized run rate than to have a higher % growth rate on a meaningfully smaller annual revenue”
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On AI Backlog: “Backlog grew to $200 billion by Q3 quarter end and doesn’t include several unannounced new deals in October, which together are more than our total deal volume for all of Q3″. (The 10-Q confirms the $200B backlog) .
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On AI Capacity & Custom Chips: “we’ve been focused on accelerating capacity… adding more than 3.8 GW of power in the past 12 months” . “As fast as we’re adding capacity right now, we are monetizing it“.
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On Trainium (Custom AI Chip): “Trainium2… is fully subscribed, and is now a multi-billion-dollar business that grew 150% quarter-over-quarter“.
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On Grocery “Game Changer”: “customers in more than 1,000 cities and towns now can shop fresh groceries alongside millions of Amazon.com
products with free same-day delivery. This is a game changer” . -
On Severance & Culture: “the announcement that we made a few days ago was not really financially driven… It’s culture… we are committed to operating like the world’s largest startup. That means removing layers, increasing the amount of ownership… and inventing and moving quickly” .
Brian Olsavsky (CFO):
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On Special Charges: He confirms the two charges: $2.5 billion for the FTC settlement and $1.8 billion for severance .
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On CapEx: “We’ll continue to make significant investments, especially in AI… we expect our full-year cash CapEx to be approximately $125 billion in 2025, and we expect that amount will increase in 2026“.
🎯 My Take
Amazon is running on two tracks:
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The Core Business: The Stores business is an efficient, moderately growing cash-generation engine. Management is focused on “operational efficiencies” and innovating with AI (like Rufus) and logistics (like same-day grocery) to keep it humming.
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The AI Hyper-Growth Bet: The narrative of this quarter is AWS’s re-acceleration. This is fueling a massive, company-altering investment cycle. The $50.9B+ YoY jump in CapEx and the plan to spend over $125 billion in 2026 is staggering.
The risks are now real: The $2.5 billion FTC fine shows regulation has a material cost. And the $125B+ CapEx bet must generate returns.
But the moat is clear: The $200B AWS backlogshows customers are locked in. More importantly, their custom Trainium chip is now a multi-billion-dollar, 150% QoQ growing business, giving them a serious supply and cost advantage in the AI arms race.
The $1.8B severance isn’t just a cost-cut; it’s a “cultural reset” to make the company “lean” and “flat” enough to execute on the massive AI opportunity ahead.