What to know today

  • Amazon beats expectations. 
  • It’s generally good to own stuff.
  • Central bankers speak.

Still a Pure Growth Play

AWS is in good shape.

All the numbers add up, but Amazon.com $AMZN still didn’t declare a dividend on Tuesday afternoon.

The share price surged as much as 5 percent in post-close trading after it sagged more than 3 percent during regular hours, as management reported first-quarter earnings per share of $0.98 on revenue of $143.3 billion.

AMZN, which beat FactSet-compiled consensus expectations of $0.84 per share on revenue of $142.6 billion, remains the one S&P 500 component with a trillion-dollar market capitalization that doesn’t pay a dividend.

Microsoft $MSFT made its first quarterly dividend payment of $0.08 per share in March 2003 and recently declared a $0.75 payout. Apple $AAPL, which will report fiscal second-quarter earnings tomorrow, has been a regular dividend-paying stock since July 2012.

Alphabet $GOOGL declared its first quarterly dividend, $0.20 per share, upon release of its results last week. Meta Platforms $META paid its first dividend in March. And even Nvidia $NVDA pays $0.04 per share per quarter.

Amazon.com $AMZN is up more than 15 percent so far in 2024, as investors continue to await its first-ever dividend declaration.

And things appear to be going well for AMZN.

The stock is well appreciated, posting another double-digit gain so far this year and comfortably outperforming the S&P 500 as well as MSFT, AAPL, and fellow non-dividend-payer Tesla $TSLA.

And financial and operating results continue to be stellar.

Sales for Amazon Web Services grew by 17 percent year over year, and, as CEO Andy Jassy noted in the company’s press release, the segment’s annual revenue run rate is now at $100 billion.

“The combination of companies renewing their infrastructure modernization efforts and the appeal of AWS’s AI capabilities is reaccelerating AWS’s growth rate," Jassy said.

CFO Brian Olsavsky noted “strong demand signals” from customers on the AWS side during management’s conference call. “They’re signing longer deals with larger commitments, many with generative AI components.”

According to Olsavsky, generative AI is now a “multi-billion dollar revenue run-rate business” for AMZN. That’s the first dollar figure management has used to describe its efforts on that initiative.

The CFO also said capex would “meaningfully increase” this year to support AWS growth. Management has previously said it will spend more than $150 billion over the next decade and a half to develop more data centers.

Operating income grew to $15.3 billion compared to $4.8 billion a year ago. AMZN generated free cash flow of $50.1 billion during the 12 months ended March 31 compared to an outflow of $3.3 billion for the prior corresponding period.

Management guided to net sales growth of 7 percent to 11 percent for the second quarter to a range of $144 billion to $149 billion. Operating income will be $10 billion to $14 billion compared to $7.7 billion in the second quarter of 2023.

Ahead of the earnings announcement Al Root of Barron’s made the argument “why Amazon should start paying a dividend.”

The big number here – and it is a big number – is the more than $90 billion of free cash flow the company has generated over the past decade.

AMZN executed a $6 billion share buyback in 2022 to generate a capital return of 7 percent.

That compares with an average free-cash-flow return of approximately 75 percent for the other trillion-dollar companies.

From the Research Desk, we learn that 13 companies have declared their first-ever dividend payments over the trailing 12 months. Another 323 have announced dividend increases.

According to Citi Research head of US equity strategy Scott Chronert, an eventual transition to a lower-interest-rate environment will make dividend-paying stocks more attractive.

Big Tech is already in on the act, as the segment matures amid broad changes in market leadership and below-the-surface trends.

Indeed, just below, we take a Deep Dive into price action in the commodities complex.

And we close out today’s issue with a look at the 2:00 p.m. ET release of the Federal Open Market Committee policy statement and Jerome Powell’s follow-up press conference. 

deep dive

It’s a Commodity Supercycle

These things can last for a while.

Supply issues are creating upward price pressure on all kinds of commodities – hard, soft, metals, energy, agricultural, industrial…

There’s a little bit of speculation happening, too, of course, but what’s driving action in that complex is generally fundamental.

Whether it’s weather issues impacting the growing cycle for cacao trees or the long development horizon for copper mines, supply is constrained but demand is not.

The price of gold recently broke out to an all-time high, a signal, according to some analysts, of a commodity supercycle that could last decades.

Gold futures broke out to a new all-time high in April in a sign of a secular bull market for the yellow metal in particular and commodities generally.

As my friend and colleague J.C. Parets of All Star Charts recently suggested, it’s not about “how high can they go” but more along the lines of “how long can this last.”

J.C.’s commodity consigliere Ian Culley has pointed out that based on historical measures, this cycle is likely to last “a long, long time.”

And things like crude oil could approach $200 per barrel. Copper futures are trading in the upper $4s right now, pushing all-time highs. Could it go to $10? What kind of world will it be where the per-ounce price of gold is $5,000? 

Maybe we’ll get to find out, and soon.

deep dive |
May 1, 2024

It’s a Commodity Supercycle


What Nick Said

Let’s manage our Fed expectations.

There will be no rate cut today. But there will be a press conference.

Back in December, when Federal Reserve Chair Jerome Powell first started talking about the transition to easing, it may have seemed possible.

A first quarter of healthy growth but persistent inflation has pushed expectations for the Fed’s first move of its new cycle further into 2024.

Nick Timiraos of The Wall Street Journal, who always gets the word before we do, confirmed it yesterday morning.

“Fed officials will hold their benchmark federal-funds rate steady at its highest level in more than two decades, around 5.3%, at their two-day policy meeting that begins Tuesday,” Timiraos wrote.

[The effective federal funds target rate remains at its highest level in more than two decades.]

We’ll likely hear multiple variations on the following theme when Powell speaks this afternoon: “We are prepared to hold rates steady at a level we expect will provide meaningful restraint to economic activity for longer than we previously anticipated.”

It’s a message we heard two weeks ago when Powell last spoke in public before the pre-Federal Open Market Committee quiet period.

The “twain” Powell will navigate are, one, that the central bank expects inflation to moderate at an uneven pace, and, two, that it sees inflation as stuck at this elevated level.

If it’s the former, expectations will hang on one or two rate cuts this year. If it’s the latter, well, there’s no case for any rate cut this year.

When last we heard from him, Powell said that current policy is “well-positioned to handle the risks that we face,” noting that if inflation runs hotter the Fed will keep rates where they are.

So, a rate hike, even in the foreseeable future, remains a remote possibility.

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