Nvidia’s stock has skyrocketed by over 180% since January 2024, contributing nearly one-quarter of the gains in the S&P 500 (SNPINDEX: ^GSPC) during that period. With a current valuation of $3.4 trillion, Nvidia remains a dominant force in the artificial intelligence (AI) sector. However, as businesses transition AI prototypes into tangible products, public cloud companies like Amazon and Alphabet may emerge as frontrunners, potentially surpassing Nvidia’s market value by year-end 2025.
The Rise of Amazon and Alphabet in the AI Race
Amazon (AMZN) and Alphabet (GOOGL) are strategically positioned to capitalize on the surging demand for AI infrastructure. Both companies are currently valued at $2.3 trillion and $2.4 trillion, respectively. To surpass Nvidia’s market value, Amazon would require a 52% increase to $3.5 trillion, while Alphabet would need a 46% boost.
Key Factors Driving Amazon’s Growth
Amazon’s Q3 2024 financial results showcased robust performance, with revenue growing 11% year-over-year to $159 billion. The company’s operating margin expanded to 9.8%, and earnings surged 52% to $1.43 per diluted share, outperforming Wall Street’s expectations. Amazon Web Services (AWS), accounting for 31% of public cloud spending, remains a key driver of growth, offering a significant advantage in monetizing AI technologies.
Amazon’s custom AI chips, Trainium and Inferentia, provide cost-effective alternatives to Nvidia’s GPUs, further strengthening its position in the AI market. Additionally, its Bedrock platform and Amazon Q assistant empower developers to create and deploy AI applications efficiently.
Analysts forecast Amazon’s earnings to grow 26% over the next year. However, accelerated adoption of AI services could propel earnings growth to 35%, pushing its market value to $3.5 trillion by 2025. Even if Amazon doesn’t achieve this milestone, its long-term growth prospects make it an attractive investment.
Alphabet’s Path to $3.5 Trillion
Alphabet reported a 15% revenue increase in Q3 2024, reaching $88 billion. The company’s GAAP net income rose 37% to $2.12 per diluted share, driven by strong performance in Google Cloud and Google Services. Google Cloud’s market share grew by 2 percentage points, contrasting with Microsoft’s 3-point decline, highlighting Alphabet’s competitive edge.
Alphabet’s leadership in AI infrastructure, machine learning platforms, and foundational language models has been recognized by industry analysts. Its custom AI chips and differentiated solutions position it to capture significant market share as businesses scale AI adoption.
Wall Street projects a 14% increase in Alphabet’s earnings over the next year. However, robust AI-driven growth could lead to a 25% earnings increase, elevating its market value to $3.5 trillion. Despite uncertainties like the ongoing antitrust case, Alphabet remains a solid long-term investment.
Why AI Spending Will Drive Growth in 2025
Bloomberg Intelligence predicts a 71% increase in generative AI spending in 2025, underscoring the immense growth potential for companies like Amazon and Alphabet. Both companies’ substantial investments in AI infrastructure and product development position them to benefit significantly from this trend, potentially outpacing Nvidia’s market dominance.
Final Thoughts
While Nvidia has been a clear leader in the AI space, Amazon and Alphabet’s strategic investments and strong market positions make them compelling contenders to surpass Nvidia’s market value by 2025. Investors seeking exposure to the AI revolution should closely monitor these tech giants as they continue to innovate and expand their AI capabilities.
Should You Invest Now?
Before investing in Amazon or Alphabet, consider their growth trajectories and current valuations. Both companies offer significant upside potential, driven by the increasing adoption of AI technologies. However, as always, diversification and a long-term perspective are key to navigating the rapidly evolving tech landscape.
