Amazon's Record Cash Flow Fuels Speculation of Share Buybacks or Dividend Initiation

Amazon's cash flow hits record $32 billion, eyes on capital return policy amid $86 billion cash reserve and strategic AI investments.

By Max Weldon

4/4, 08:03 EDT
Amazon.com, Inc.
Alphabet Inc.
Meta Platforms, Inc.

Key Takeaway

  • Amazon's free cash flow hit a record $32 billion last year, with projections to double by 2024, fueling speculation of increased share buybacks or a dividend initiation.
  • Despite not buying back shares in 2023 and facing regulatory challenges, Amazon plans a $150 billion investment in data centers for AI and digital services growth.
  • Amidst layoffs and community opposition to expansion, Amazon's strategic focus on AI positions it strongly against competitors in the cloud services market.

Amazon's Cash Flow Surge

Amazon.com Inc. has experienced a significant increase in free cash flow, reporting a record $32 billion last year. Projections by Bloomberg suggest this figure could nearly double by 2024. This financial growth has led to speculation among Wall Street analysts about the potential for Amazon to adopt a more generous capital return policy. Robert Schiffman, a senior credit analyst at Bloomberg Intelligence, suggests that Amazon's options for deploying its cash are becoming limited due to regulatory opposition to Big Tech acquisitions. As a result, there is anticipation of increased share buybacks and possibly the initiation of a dividend. Amazon ended 2023 with over $86 billion in cash, having conducted its last buyback in 2022 for $10 billion, a modest amount compared to its peers.

Capital Return Policy Shift

Amazon's capital return policy is under scrutiny as the company, traditionally known for reinvesting its cash into the business, has not bought back any shares in 2023. This contrasts with actions taken by Alphabet Inc. and Meta Platforms Inc., which have engaged in substantial buybacks and, in Meta's case, initiated a dividend. A change in Amazon's policy could indicate a strategic shift under CEO Andy Jassy, who succeeded Jeff Bezos in 2021. Despite the absence of significant buybacks, Amazon's stock has performed well, with a 20% increase this year, buoyed by optimistic views on artificial intelligence's role in Amazon Web Services' growth.

Investment in Growth and AI

Amazon plans to invest almost $150 billion in data centers over the next 15 years to support the anticipated demand for artificial intelligence applications and other digital services. This investment underscores Amazon's commitment to maintaining its leadership in the cloud services market. Despite a slowdown in sales growth at Amazon Web Services last year, the company is poised for expansion, with plans to extend its data center infrastructure across various global locations. This strategic focus on AI and digital services is critical for Amazon to defend against competitors, according to Cyrus Amini, chief investment officer at Helium Advisors.

Challenges and Opportunities

As Amazon navigates its growth strategy, it faces challenges, including layoffs in its cloud division and opposition to data center expansion. The company's cloud division, AWS, has announced cuts affecting sales, marketing, and technology development employees. Additionally, Amazon's aggressive data center expansion has met resistance in some communities due to concerns over environmental impact and infrastructure demands. Despite these hurdles, Amazon's significant investment in AI and cloud infrastructure positions it to capitalize on the burgeoning demand for digital services, reinforcing its status as a tech giant.

Street Views

  • Robert Schiffman, Bloomberg Intelligence (Bullish on Amazon):

    "This suggests not only rising share buybacks, but a more aggressive capital return policy that could include a dividend. If returns don’t increase, cash balances could soar above $100 billion later this year."

  • Naveen Jayasundaram, ClearBridge Investments (Neutral on Amazon's dividend prospects):

    "I think Amazon views itself as being earlier in the growth cycle compared with Alphabet and Meta, so I would be surprised if we got a dividend this year... However, it does seem like something that could come in the next four to five years."

  • Cyrus Amini, Helium Advisors (Neutral on Amazon's spending priorities):

    "I wouldn’t be disappointed if it did a buyback, but I would be surprised. Amazon is still growing, and it needs to keep spending to protect its moat."

Management Quotes

  • Andy Jassy, CEO of Amazon:

    No direct quote provided.