AI-infused expansion propels Amazon stock ahead in first quarter

On By Vaseline

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Amazon shares are showing steady performance under CEO Andy Jassy following the release of first-quarter results.

The leading cloud services provider has seen a remarkable 15% increase in share value in the first four months of 2024, surpassing the Nasdaq’s 6% gain. Amazon further strengthened its position and saw an additional 2% increase in after-hours trading on May 1, the Wall Street Journal reported.

Jassy’s strategic cost-cutting measures have notably increased Amazon’s profitability. Despite this progress, while the company’s revenue growth continues to improve, it still lags behind the 27.4% average annual growth rate achieved by the e-commerce giant in the decade prior to his tenure.

In light of a lack of significant new growth-oriented investments, some suggest Amazon could consider following in the footsteps of Apple and Alphabet by devoting resources to dividends and stock buybacks to attract investors.

With Jassy determined to leverage the potential of generative AI for substantial growth, investors are eagerly awaiting the realization of his vision, which translates into accelerated revenue growth.

Amazon’s first-quarter 2024 earnings report showed mixed performance, marked by beating sales and profitability forecasts alongside disappointing revenue forecasts.

The question arises: can Amazon achieve faster growth? The company’s single-digit growth forecast for the current quarter raises speculation about whether it will follow a path similar to that of Apple, which has relied heavily on mature growth investments under its previous leadership.

After falling behind competitors such as Microsoft and Google, Jassy is determined to bridge the gap. In his annual shareholder letter, he outlined a vision in which generative AI serves as the cornerstone for Amazon’s future growth ambitions, as highlighted by the Journal.

Here are four critical initiatives from Amazon to use generative AI as a key growth catalyst:

  1. AWS Generative AI Applications: Companies using generative AI applications on AWS experience revenue growth. CFO Brian Olsavsky noted strong investor interest in using generative AI on AWS, with services generating “multi-billion dollars” of revenue in the first quarter of 2024.
  2. Amazon question: AWS introduced Amazon Q, an AI chatbot for businesses that provides software development, cloud optimization, and business intelligence assistance.
  3. Rufus Shop Assistant: Amazon has unveiled Rufus, an AI-powered mobile shopping assistant aimed at improving the shopping experience and boosting retail sales and media revenue.
  4. Investments in AI Startup Anthropic: Amazon invested $4 billion in Anthropic, the operator of Claude, an AI chatbot. The collaboration aims to unlock innovative options for customers to use generative AI safely and responsibly.

As Amazon’s cash reserves soar, some are wondering why the company is refraining from buying back shares and paying dividends, similar to its peers like Meta and Alphabet. While Amazon has spent significant amounts on capital expenditures, mainly on generative AI, it remains reluctant to initiate dividend payments.

Given its significant cash reserves, why can’t Amazon invest in generative AI, pay dividends and buy back shares at the same time?