Alphabet Issues First-ever Dividend, Turning the Spotlight on Amazon

Investors have been looking for signs of maturity from technology firms. Dividends often signal the maturation of a company, yet they can also serve as a strategic distraction for investors in the face of substantial capital expenditures.

Starting in 2022, each major tech company implemented layoffs and curbed expenditure. These austerity measures were met with positive responses from investors, who have also reacted favorably to announcements of share repurchases and the initiation of dividends. Notably, when Meta declared its inaugural dividend in February, its stock price surged by over 20%.

Alphabet has decided to initiate a dividend, following in the footsteps of Meta, which surprised Wall Street by announcing its first dividend in February. This move led to speculation about whether Alphabet or Amazon would be the next big tech company to do the same.

Typically, starting to pay a dividend is associated with more mature companies whose rapid growth phase has passed. However, both Meta and Alphabet continue to experience strong growth, largely driven by internet advertising revenue. Despite this, both companies are also ramping up capital expenditures, particularly in developing AI infrastructure, including data centers, hardware, and software.

Alphabet, which some on Wall Street view as lagging in AI, used its conference call to highlight progress with its AI chatbot, Gemini, launched in 2023. The company noted that the costs for Gemini were lower than expected and that it had improved latency. Alphabet's CEO, Sundar Pichai, suggested that monetizing Gemini would be a gradual process but expressed confidence in the company's strategic position.

It is important to note that Amazon has never distributed dividends to its shareholders, nor has it sanctioned a share repurchase program approaching the magnitude of Alphabet's. The most substantial buyback plan Amazon has authorized was in 2022, capped at $10 billion.

The critical issue at hand is whether Amazon will yield to investor pressure and initiate a dividend, a commitment that typically binds a company to long-term, consistent payouts that are challenging to discontinue once established. The anticipation and pressure from investors are mounting.