Amazon

Amazon has historically been an outstanding capital allocator, prioritizing long-term value creation over short-term earnings. The company relentlessly reinvests its cash flows into growth initiatives and infrastructure that strengthen its moat – a strategy that has paid off handsomely in the form of AWS, Prime, and a global logistics network.

Amazon’s capex in areas like fulfillment centers, delivery logistics, and cloud data centers has been enormous, but these investments have built high barriers to entry and support future growth.

For instance, Amazon is now doubling down on AI-related infrastructure, with CEO Andy Jassy emphasizing heavy spending on AI chips and data centers to stay at the forefront. This willingness to invest aggressively in new technology (e.g. generative AI, voice AI with Alexa, etc.) reflects management’s forward-looking approach to capital allocation.

The company has also shown discipline in other uses of capital. Amazon rarely pays dividends and only recently initiated modest share buybacks – a sign that it generally finds better returns by reinvesting in the business.

Dilution from stock-based compensation is kept reasonable for a company of this size: total outstanding shares have crept up only about 1–2% per year, and the proportion of stock awards is actually declining.

Management appears mindful of shareholder value – for example, they authorized a $10 billion buyback program in 2022 when the stock was under pressure, a prudent move to deploy capital opportunistically (though only a small portion has been used so far). On the acquisition front, Amazon’s track record is relatively sound.

It does not rely excessively on acquisitions for growth, but when it has made big purchases (Whole Foods for $13.7 billion, MGM Studios for ~$8.5 billion), these were strategic, aligning with long-term goals of expanding into grocery and boosting Prime Video content. While not every deal’s payoff is immediately clear (e.g.

Whole Foods integration is ongoing), none have been truly value-destroying or reckless given Amazon’s scale. Most smaller acquisitions (like Ring, PillPack, Kiva robots, Twitch) have been aimed at enhancing capabilities and have been successfully integrated.

Overall, Amazon’s capital allocation grade is high because management consistently plows resources into widening the moat and driving growth at high incremental returns. They avoid shortsighted actions – for years Amazon sacrificed profit margins to capture market share, a strategy that has yielded dominant businesses today.

That said, investors should note Amazon is inherently capex-heavy and free cash flow can be volatile year-to-year depending on investment cycles. We view those investments as largely astute and beneficial long-term.

The current leadership continues Bezos’s philosophy of long-term, high-ROI reinvestment, exemplified by the ongoing big bets on cloud, logistics, and AI. As long as Amazon maintains this disciplined, strategic approach to capital deployment, shareholders should benefit over time.