Amazon.com Inc. (AMZN, Financial) has traditionally been known for its conservative approach towards distributing capital to its shareholders. However, with the company's cash flow reaching new heights, expectations are growing on Wall Street for a shift towards more liberal financial returns to investors.
Following a remarkable achievement of $32 billion in free cash flow last year, projections suggest Amazon might almost double this figure by 2024. The landscape of Big Tech mergers and acquisitions is becoming more challenging due to regulatory scrutiny, limiting Amazon's options for utilizing its abundant cash reserves, as noted by Bloomberg Intelligence's senior credit analyst, Robert Schiffman.
Schiffman pointed out the likelihood of an increase in share buybacks and possibly a more assertive approach towards capital return, potentially including dividends. Without an uptick in returns, Amazon's cash reserves are expected to exceed $100 billion by the year's end, following a closing balance of over $86 billion in cash at 2023's end.
Amazon has historically reinvested its profits back into the company rather than distributing them to shareholders, with its last buyback program amounting to $10 billion in 2022. This figure pales in comparison to its peers, such as Alphabet Inc. and Meta Platforms Inc., which have aggressively repurchased shares and even initiated dividends.
In contrast, Amazon did not partake in any share buybacks in 2023. A potential change in this policy could indicate a significant strategic shift under CEO Andy Jassy's leadership, who succeeded co-founder Jeff Bezos in 2021.
Despite the absence of substantial buybacks, Amazon's stock has seen a 20% increase this year, boosting its market value to $1.9 trillion. This surge is partly attributed to heightened profit forecasts and optimism surrounding the role of artificial intelligence in revitalizing growth at Amazon Web Services.
While Amazon is nearing an all-time high, it remains the only one among the top five US tech giants not to have reached record valuation levels. In comparison, Microsoft Corp. and Meta have seen substantial increases above their previous highs.
ClearBridge Investments' senior research analyst, Naveen Jayasundaram, anticipates Amazon might announce a significant buyback program within the year, though he deems a dividend less likely. He suggests Amazon still sees itself in an earlier growth phase compared to its counterparts like Alphabet and Meta.
Amazon is set to announce its first-quarter earnings soon, with plans to invest nearly $150 billion over the next 15 years in data centers. This investment is crucial for Amazon to maintain its competitive edge and meet the growing demand for AI-driven digital services.
Helium Advisors' CIO, Cyrus Amini, expressed that while a buyback wouldn't be unwelcome, Amazon's priority remains growth and investment to safeguard its market position.
The Philadelphia Stock Exchange Semiconductor Index, or SOX, has seen a nearly 60% increase over the past year, driven by companies benefiting from AI advancements, such as Nvidia Corp., Broadcom Inc., and Micron Technology Inc., significantly outperforming the S&P 500 Index.
Top tech stories include Apple Inc.'s exploration into personal robotics, Tesla Inc.'s increased compensation for AI engineers, and significant investments in the semiconductor industry by companies like SK Hynix Inc., showcasing the ongoing innovation and competition in the tech sector.
Earnings announcements and major tech developments continue to shape the industry landscape, highlighting the strategic moves by leading companies.
