Anticipated Development: One Artificial Intelligence (AI) Shares That Could Surpass Nvidia's Value within a Half Decade
In recent years, the tech landscape has undergone a major transformation, largely thanks to advancements in artificial intelligence (AI). Taking a glance at the most valuable companies by market capitalization reveals a clear shift towards tech giants with deep roots in AI.
Leading this revolution is Nvidia (NVDA 0.63%), whose high-performance graphics processing units (GPUs) power generative AI applications, propelling its value to an impressive $3.4 trillion (as of now). Only Apple, with a market cap of almost $3.7 trillion, surpasses Nvidia. With big-name clients planning to spend a colossal $315 billion on data center investments by 2025, Nvidia, as the leading provider of data center GPUs, stands to capture a substantial portion of that spending.
Despite its remarkable growth over the past five years (1,780%) and its position as my second-largest individual holding, some investors are looking beyond Nvidia. Enter Amazon (AMZN -1.65%), a company with multiple ways to thrive in an AI-focused world.
The AI-Powered Future
Many companies are still grappling with figuring out how to monetize AI, but Amazon is well ahead of the pack. For years, AI has been instrumental in enhancing and improving Amazon's existing businesses, from streamlined fulfillment processes to precise targeted advertising. But, the online retail giant is only just beginning to tap into the full potential of AI.
Amazon's CEO, Andy Jassy, revealed that advances in AI-powered robotics have been instrumental in reducing fulfillment processing times by up to 25%. Fulfillment costs are a significant factor in Amazon's operating expenses, accounting for over 17% in 2024. By cutting costs and boosting efficiency, Amazon stands to significantly boost its profits.
Moreover, Amazon Web Services (AWS), the dominant force in cloud infrastructure, continues to mine profit gold. Last year, AWS generated 58% of Amazon's operating income. Dedicated to maintaining its industry-leading position, AWS has introduced Trainium and Inferentia AI processors to offer more value to customers. It also provides Amazon SageMaker AI, enabling developers to create, train, and deploy their own AI models.
Amazon's AI Advantage
Nvidia currently boasts a market cap of $3.4 trillion, while Amazon clocks in at $2.4 trillion (as of this writing). If Amazon managed a 42% stock price increase, it could surpass Nvidia; conversely, a 30% drop in Nvidia's share price would put Amazon in the lead. However, given the volatile nature of both stocks, the actual outcome is likely to be more complex.
According to Wall Street projections, Amazon's revenue could reach $699 billion in 2025, translating to a forward price-to-sales (P/S) ratio of around 3.4. To maintain its current market cap, Amazon would need to grow its revenue to roughly $990 billion by 2029, achievable given its current growth rate of 10%. A more moderate 7% annual growth rate would see Amazon passing Nvidia's market cap by 2030.
Nvidia has experienced staggering growth since AI came into the limelight. Over the past three years, its stock has soared by 489%. The surge in demand for AI-centric chips and data center buildouts have contributed to its growth. But investing in AI is a double-edged sword. If demand for its processors wanes, investors may be forced to reassess Nvidia's valuation and multiple, potentially knocking its stock price down.
Meanwhile, Amazon's diversified approach to AI holds tremendous promise. By capitalizing on digital retail, cloud computing, digital advertising, and expanding its AI offerings, Amazon may well overtake Nvidia by 2030. Priced at just 35 times the expected earnings for next year, Amazon appears to be a solid investment, considering its multiple avenues to success.
- In light of the significant investments planned by major companies in data centers by 2025, worth $315 billion, Nvidia, as the primary provider of data center GPUs, stands to gain a considerable portion of this spending due to its involvement in AI-powered generative applications.
- Despite having a lower market capitalization than Nvidia at $2.4 trillion, Amazon, with its advanced AI capabilities, could potentially surpass Nvidia if it experiences a 42% increase in its stock price by 2025.
- Leverage plays a crucial role in investing, and the potential for Amazon to surpass Nvidia by 2030, given its current 10% growth rate and diversified AI strategies, could be an attractive proposition for investors seeking leverage in the tech industry.
- By 2025, Amazon is projected to have a revenue of $699 billion, which, considering its current market cap and P/S ratio, indicates that the company has the potential to generate significant returns for investors interested in AI-focused finance and investing.
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