Equities
Amazon prioritizes AI and cloud investments over dividends, achieving a 10.7% operating margin and a 200% net income jump.
By Max Weldon
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Amazon.com Inc. has maintained its long-standing approach of reinvesting in its business, as reiterated by Chief Financial Officer Brian Olsavsky during a post-earnings call. Despite a growing cash pile and speculation from investors about potential dividends or stock buybacks, Amazon has chosen to focus on paying down debt and expanding its data centers to leverage the artificial intelligence boom. Olsavsky emphasized the company's priority to support growth opportunities and long-term investments that promise meaningful returns. This strategy comes at a time when tech giants like Meta Platforms Inc. and Alphabet Inc. have initiated dividends and buyback programs, making Amazon the largest company in the S&P 500 without a regular payout to investors.
Amazon reported a significant milestone in its first-quarter earnings, achieving double-digit operating margins for the first time. The operating margin rose to 10.7%, with operating income more than tripling to $15.3 billion and net income jumping over 200% to $10.4 billion. This growth is attributed to CEO Andy Jassy's focus on services, aggressive expense management, and the expansion of higher-margin businesses such as advertising and cloud computing. Amazon Web Services (AWS) saw a 17% increase in revenue, contributing significantly to the company's operating income. Additionally, Amazon's advertising revenue grew 24% to $11.8 billion. The company has also made its retail business more efficient through regionalization efforts and has reduced technology, infrastructure, sales, marketing, and general administrative costs.
Amazon's earnings spotlighted its investment in artificial intelligence, particularly through its AWS segment. The company has launched AI services in the cloud business and plans a "meaningful" increase in capital expenditures for 2024 to support these initiatives. This move aligns with the broader tech industry's focus on generative AI and cloud services, responding to increasing demand. Amazon's strategy in AI and cloud computing is under watch, especially following Meta Platforms' earnings slump over AI investment concerns. Investors and analysts are closely monitoring Amazon's AI spending and its impact on profitability, with AWS playing a key role in the company's future growth.
The tech sector's recent earnings reports have brought capital return strategies to the forefront, with significant moves by Alphabet and expectations around Amazon. Despite speculation, Amazon has not announced a dividend or expanded its buyback program, focusing instead on internal investments and growth opportunities. The company's stock rose about 1% in extended trading following the earnings report, reflecting investor sentiment and interest in Amazon's strategic decisions. The performance and strategic choices of Amazon in this earnings report are crucial for investor sentiment, given its high valuation and dominant market position.
"Our first priority is to invest in, to support the growth opportunities and long-term investments within our businesses, and generally we still have many opportunities for that capital to use that would generate meaningful returns."
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