The past few years have marked a paradigm shift in technology thanks to recent advances in artificial intelligence (AI). A quick look at the list of the world's most valuable companies by market cap helps to illustrate the shift. Eight of the top 10 are among the world's most recognized purveyors of technology -- and each of them has deep ties to AI.
Nvidia's (NVDA 1.41%) graphics processing units (GPUs) supply the computational horsepower that makes generative AI possible and has ridden the accelerating wave of adoption to new heights. With a market cap of $3.4 trillion, its value is exceeded only by Apple at nearly $3.7 trillion (as of this writing).
The future looks bright for Nvidia, as the company's largest customers have committed to invest a combined $315 billion in capital expenditures in 2025. The vast majority of that spending is allocated to the servers and data centers needed to support AI. As the leading provider of data center GPUs, Nvidia will capture a large portion of that spending.
Despite its stock gaining 1,780% over the past five years, it's unlikely Nvidia will be able to repeat its performance over the next half decade, and some investors are looking ahead to the next stage of AI adoption. One company that has multiple ways to win in an AI-centric future is Amazon (AMZN 0.11%).
Image source: Getty Images.
AI is a means to an end
Many companies are still figuring out how best to profit from AI, but Amazon is already in a league of its own. The online retailer has long used AI to enhance and improve its existing businesses. Yet Amazon has only just begun to exploit the opportunity represented by AI.
CEO Andy Jassy said that developments in the field of AI-powered robotics "simplify stowing, picking, packing, and shipping processes." These advances have helped reduce fulfillment processing times by up to 25%. Fulfillment costs accounted for more than 17% of Amazon's operating expenses in 2024, so these improvements will help expand the company's bottom line and boost profits.
Let's not forget Amazon Web Services (AWS), the company's cloud infrastructure platform. AWS has long generated the lion's share of Amazon's profits, accounting for 58% of its operating income last year. The company has worked diligently to maintain its industry-leading cloud position.
To that end, Amazon has introduced its home-grown Trainium and Inferentia AI processors, which offer cloud customers more bang for the buck. AWS isn't stopping there. In addition to offering customers all of the most in-demand AI models, it offers Amazon SageMaker AI, which helps developers build, train, and deploy their own AI models. Jassy recently noted (emphasis mine) that "In the past 18 months, AWS has released nearly twice as many machine learning and generative AI features as the other leading cloud providers combined."
Amazon is also using AI to inform the targeted advertising that appears on its e-commerce site, within Prime Music, and on its Freevee streaming service. Furthermore, advertising is now standard for Amazon Prime Video. Viewers can opt out of the ads for $3 per month or $36 per year. This captive audience gives Amazon growing leverage with advertisers, which is why its advertising segment has been its fastest growing business over the past year.
NASDAQ: AMZN
Key Data Points
How Amazon vaults past Nvidia
Nvidia currently sports a market cap of $3.4 trillion, compared to $2.4 trillion for Amazon. Mathematically speaking, it would take a stock price increase of 42% for Amazon to surpass Nvidia. Alternatively, it would take a stock price decline of 30% for Nvidia. The reality isn't as simple as either of these, as neither stock price will be static.
Wall Street is forecasting that Amazon will generate revenue of $699 billion in 2025, giving it a forward price-to-sales (P/S) ratio of roughly 3.4. Assuming its P/S remains constant, Amazon would have to grow its revenue to roughly $990 billion annually to support a $3.4 trillion market cap. Assuming it maintains its current growth rate of 10%, Amazon could cross that threshold by mid-2029. Even more modest growth of 7% annually would still achieve that goal by 2030.
Nvidia has generated remarkable growth since the advent of AI. In fact, over the past three years, its stock price has gained 489% (as of this writing). The company has benefited from an unprecedented data center buildout, which requires a vast number of its AI-centric chips.
Yet what the market gives, the market can take away. Three times over the past year alone, Nvidia stock has fallen between 20% and 25%, driven by reports of challenges with its next-generation AI chips and the potential for sinking demand for its processors. If there's an actual decline in demand, investors would reset their expectations and adjust Nvidia's multiple -- and its stock price -- accordingly.
Don't get me wrong. I'm a died-in-the-wool Nvidia bull, and the stock is my second largest individual holding, but a lot can happen in five years. I believe it's entirely possible that Amazon's combination of digital retail, cloud computing, digital advertising -- and the expansion of its AI offerings -- could be enough to propel the stock past Nvidia by 2030.
Yet despite its remarkable track record and multipronged growth opportunity, Amazon stock is selling for just 35 times next year's earnings -- a reasonable valuation for a company with so many ways to win.
