Source: Zhitong Finance

Over the years, American tech giants$Amazon (AMZN.US)$It has always been the most stingy of tech giants when it comes to returning capital returns to shareholders. However, the tech giant currently has such a large amount of free cash flow, that some Wall Street investment institutions expect a more generous return or invest more capital in AI research and development to gain the status of AI application-side leaders, so these institutions have chosen to invest their capital in this stock.

According to statistics compiled by Bloomberg Intelligence, Amazon's free cash flow for the full year of 2023 reached a record 32 billion US dollars, and analysts generally expect this figure to double by 2024. Robert Schiffman (Robert Schiffman), a senior credit analyst at Bloomberg Intelligence, said that as large technology companies' acquisition plans face strong opposition from antitrust regulators on an increasingly large scale, Amazon has fewer and fewer options for how to allocate this cash other than dividends and stock repurchases and R&D.

Analyst Schiffman also said, “This means not only increasing share buybacks, but also adopting more aggressive return on capital measures, which will most likely include high dividends.” “If shareholder returns don't increase, Amazon's cash balance could soar to over $100 billion later this year.”

Financial statistics show that by the end of 2023, Amazon had more than 86 billion US dollars in cash assets.

For most of Amazon's 30 years, Amazon chose to put cash back into business expansion. The last time Amazon shares were repurchased was in 2022, with a total value of about $10 billion. Compared to similar sized tech company peers, this is an insignificant repurchase value.

Even without paying dividends and announcing huge share buybacks, Amazon's stock price rally is still strong

According to data compiled by the agency, Google's parent company Alphabet (GOOGL.US) bought back more than 60 billion US dollars of shares in 2023. Facebook's parent company Meta Platforms (META.US) spent more than 20 billion US dollars to buy back its own shares during the same period, and promised to invest an additional 50 billion US dollars to buy back shares in February, while also beginning to distribute quarterly dividends for the first time.

By contrast, Amazon didn't buy back any shares in 2023. As Amazon continues to develop various core businesses under the leadership of CEO Andy Jassy (Andy Jassy), changes in its capital return policy may mark a transformation for the company. In 2021, Jaxie took over CEO Shuai Yin from co-founder Jeff Bezos.

Even in the absence of large-scale stock buybacks, with huge cash flow reserves, strong ability to withstand risks, and more capital to invest in AI research and development, Wall Street investment institutions are very fond of the company. Amazon's stock price has performed extremely well this year. Since this year, Amazon's stock price has risen as much as 20%, and its market capitalization has reached 1.9 trillion US dollars, outperforming the NASDAQ 100 Index and the S&P 500 Index, and analysts have continued to raise profit expectations. The market is also becoming more and more optimistic that the global artificial intelligence boom will help revive the growth trend of Amazon's cloud service AWS.

However, although Amazon's stock price is about to hit a record high, it is the only company among the five largest tech giants in the US that has not yet reached a record high in stock prices. For example, the current stock price of Microsoft (MSFT.US) is about 20% higher than the record high set in 2021. Currently, Microsoft is at the top of the US market capitalization rankings, while Meta's stock price has risen more than 30% from the previous peak in the same year.

Amazon may choose to invest more cash in the AI field, thereby leading the development of global AI

Naveen Jayasundaram (Naveen Jayasundaram), a senior research analyst from ClearBridge Investments, anticipates that Amazon will choose to announce a stock repurchase plan of up to tens of billions of dollars at some point this year, but it is unlikely to pay dividends.

“I think compared to Alphabet and Meta, Amazon sees itself in the early stages of the performance growth cycle, so I'd be surprised if we get a dividend this year,” Jayasandaram said. “However, it does look like it could happen within the next four to five years.”

Amazon is expected to release its first-quarter earnings report later this month. Although the company continues to cut costs, the company's cash flow reserves are still very large. Amazon plans to invest nearly $150 billion in data centers over the next 15 years to respond to expectations of “explosive growth” in demand for diverse digital services related to artificial intelligence (AI).

Cyrus Amini (Cyrus Amini), chief investment officer from Helium Advisors, said that this type of expenditure is critical for Amazon to defend its position from competitors and should be prioritized over return on capital.

“I wouldn't be disappointed if Apple actually bought back the stock, but I'd be surprised,” he said. “Amazon is still growing, and it needs to keep spending money to protect its moat.”

According to information, Amazon has now fully integrated core technology services related to generative AI into its AWS cloud computing services, showing a series of positive AI developments in integrating AI chatbots, underlying basic model libraries, computational enhancements, data storage, and underlying computing power platforms. This is also one of the core logics of Wall Street investment institutions' bullish Amazon stock price trends.

Today, with an extremely strong cash flow reserve, Amazon is expected to invest more R&D capital support in the AI field, especially on the application side, and may impact Microsoft and OpenAI on the AI application side, thereby gaining the position of market leader, just as AWS has been able to gain the largest share of the world in the cloud computing field over the years.

According to most Wall Street investment institutions, enterprise-side AI applications will be at the cutting edge of the AI software explosion, and this is the field Amazon excels at. In terms of expectations, the Mordor Intelligence research report shows that the total size of the enterprise artificial intelligence market is expected to grow rapidly at a rate of 52% per year from 2024 to 2028. According to Mordor Intelligence, global enterprises are increasingly aware of the value of incorporating artificial intelligence into their business processes, improving operational efficiency and reducing costs through AI automation processes. Mordor Intelligence emphasizes that most importantly, AI will be able to help global companies predict business outcomes in the future and improve corporate profitability.

According to expected data compiled by the investment research platform Seeking Alpha, Wall Street analysts rated Amazon as a “strong buy,” with an average target price of $207.32, which means a potential increase of 14% over the next 12 months, and is getting closer to the highest stock price in Amazon's history — $188.65 set in July 2021.

AWS recently launched a new upgraded version of Amazon Bedrock, a comprehensive generative AI-based service that enables customers to access basic models (FMs) from leading AI companies using a single API. These models are pre-trained and can be applied to a variety of core uses, from search to content creation to drug discovery. Amazon Bedrock is designed to help users easily access and utilize high-performance Foundation Models (FMS) from leading AI companies such as AI21 Labs, Anthropic, Cohere, Meta, Stability AI, and Amazon. By providing unified API access to these models, Amazon Bedrock gives developers the flexibility to use different FMS and upgrade to the latest model versions with extreme ease. The final specific uses of these large models include a variety of uses, from text generation to image generation, conversation generation, etc.

Amazon Q is a fully integrated productivity assistant launched by Amazon AWS, designed specifically for developers. Amazon Q provides access and scheduling management capabilities to the AWS platform and its connected systems through a chatbot interface. Amazon Q helps enterprise-level customers quickly get relevant answers to pressing questions, solve problems, generate content, and quickly use data and expertise from enterprise information repositories, related code, and enterprise systems to respond to business customer questions.

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