Amazon: CEO Andy Jassy's Historic $25 Billion Move Is a Massive Signal for Tech Investors (NASDAQ: AMZN)
Key Points
Amazon is expected to spend around $200 billion on capital expenditures this year.
It already has clients lined up to lease the new data center capacity it has in the pipeline.
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Amazon (NASDAQ: AMZN) just completed a large bond sale, and it's a direct sign of where CEO Andy Jassy is pointing the company. Amazon sold $25 billion worth of bonds to finance its data center build-out, telling investors it's going all in on the artificial intelligence (AI) build-out.
This is a big deal because there have been some concerns proliferating over the past month about the health of the AI build-out trend. This bond sale is a solid indicator that the trend is robust, so investors can refocus on what Amazon's future will look like as an AI-first infrastructure company.
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Image source: Amazon.com Inc.
Jassy has some insight into what's coming
In Jassy's annual letter to investors, he made the case for Amazon spending $200 billion on data center capital expenditures this year. One major factor he discussed was that the faster a cloud computing business grows, the more money it has to spend to build the data centers and purchase the chips necessary to run the workloads. Plus, he reiterated that Amazon's investments aren't being made on blind faith; the company has secured several data center clients that will start using the new computing capacity being developed the first day it's available.
That should calm investors' nerves a bit, as Amazon is doing everything right to secure a long-term opportunity in the cloud computing market.
Another factor that could set Amazon apart is its custom AI chips. Amazon Web Services (AWS) has already been successful in developing in-house Graviton central processing units (CPUs) for data centers, and its Trainium chips could also be a huge advantage, as Amazon has touted their cost effectiveness over graphics processing units for AI training workloads. It can't fully finance its ambitious expansion plans with its current cash flows, so Amazon is doing the right thing by issuing debt to secure this opportunity, even if some investors don't like it.
However, with Amazon becoming a more cloud-focused business, the stock looks even more attractive.
AWS' operating margins are far superior to those of Amazon's commerce divisions. This is evidenced by the fact that AWS accounted for 59% of operating profit in the first quarter, despite making up only 21% of revenue. As this division grows faster on the back of the company's increasingly large capital investments, Amazon's profits will likely soar, making the stock a no-brainer buy at today's levels. I think that Amazon's transformation into a cloud-focused business will surprise a lot of investors, and that the upside in the stock is real and immense.
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Keithen Drury has positions in Amazon. The Motley Fool has positions in and recommends Amazon. The Motley Fool has a disclosure policy.
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