Amazon's stock experienced a significant drop of up to 5% in after-hours trading on Thursday, following the company's announcement of third quarter sales guidance that missed analyst estimates. The retail and cloud giant projected a sales range of $154 billion to $158.5 billion for the period, falling short of the $158.43 billion forecasted by analysts, according to Bloomberg data.

Despite beating estimates for earnings per share (EPS) with $1.26, surpassing the expected $1.04 and nearly doubling profits from the same quarter last year, investors were largely focused on the areas of weakness highlighted in the report. Amazon's revenue for the third quarter reached $148 billion, slightly lower than the anticipated $148.8 billion by analysts, with even this minor shortfall failing to impress investors.

One area where Amazon performed well was its advertising segment, which has consistently experienced double-digit growth. However, this segment also fell slightly below expectations, generating $12.8 billion in revenue instead of the anticipated $13 billion. On the positive side, Amazon Web Services (AWS), the company's cloud business, reported $26.3 billion in revenue, exceeding both the expected $26 billion and the $22.1 billion generated in the same period last year. Amazon CFO Brian Olsavsky stated that AWS is on track to generate more than $105 billion annually.

Part of Amazon's strategy involves significant investments in infrastructure to support the rapid deployment of new artificial intelligence (AI) technologies and cloud services. Olsavsky revealed that the company had already invested over $30 billion in capital expenditures during the first half of the year, primarily due to the growing demand for AWS services, including generative AI tools. Amazon anticipates further increases in investments for the latter half of the year.

In terms of competition, Amazon is facing challenges from companies like Temu and Shein, which specialize in low-cost goods with a direct-from-factory supply chain. To directly compete for fashion and lifestyle spending, Amazon is reportedly developing its own discount digital storefront. Olsavsky acknowledged the presence of cautious consumers and their preference for deals.

Analyst Sky Canaves from eMarketer noted that Amazon's slower topline growth was influenced by softer consumer spending during a quarter that fell between two significant sales events, the Big Spring Sale in March and Prime Day in July. Canaves suggested that Amazon needs to position its offerings and promotions to align with these trends, such as launching a discount section similar to Temu in time for the upcoming holiday season.

Amazon's third quarter report arrived shortly after Microsoft reported better-than-expected results for the top and bottom lines. However, Microsoft's cloud revenue fell short of expectations, causing a decline in shares. Similarly, Google parent company Alphabet also disappointed investors with lower-than-expected YouTube ad revenue. On the other hand, Meta delivered impressive results for revenue and profit, earning the applause of Wall Street despite anticipating substantial capital expenditures in 2025. Meta's shares gained more than 4% on Thursday.

Alongside Amazon, Apple also released its earnings, surpassing analysts' expectations for the top and bottom lines, despite a year-over-year decline in iPhone sales.

While Amazon's Q3 sales guidance may have fallen short of expectations, the company remains committed to capitalizing on market trends and investing in strategic areas like cloud services and AI technology to maintain its competitive edge.

Disclaimer: Hamza Shaban is a reporter for Yahoo Finance covering markets and the economy.