CA - Amazon: From OPEX To CAPEX- Transform Your Business With Generative AI

2024-06-28 10:31:31 ET

Summary

• Trends in OPEX and CAPEX as a percentage of revenue are changing in the market.
• Amazon has been one of the heaviest opex spenders in the Mag7, suppressing GAAP income, this may be ready to change.
• With a new AI suite of offerings in AWS, Andy Jassy is a player in the AI arms race.

Trends are changing

With the recent AI boom sparked by demand for NVIDIA ( NVDA ) chips, the expensing of many of the MAG 7 is about to have an about-face. Companies like Amazon (NASDAQ: AMZN ), Google ( GOOGL )( GOOG ), Microsoft ( MSFT ), and Meta ( META ) have historically taken immediate expensing on the income statement in the form of SG&A and R&D. The aforementioned usually results in lower GAAP income but higher cash flows, as SaaS companies tend to have lower CAPEX needs versus industrial companies that rely on manufacturing facilities to produce products or other heavy machinery.

Now with the massive demand for AI development, expenses will begin to migrate from the income statement to the cash flow statement as at least some portion of OPEX will naturally flow to CAPEX when these companies build more data centers and buy more GPUs. These will not be immediate expenses as is the case with OPEX, they will rather be capitalized and depreciated to a greater extent. ...

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