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Anticipated Outcome: The Promising AI Company is Likely to Hold the Largest Global Market Value by 2025 (Hint: It's Not Nvidia)
2024 saw a brief stint where Nvidia held the title of the world's largest company by market capitalization. But with a sky-high price-to-earnings ratio and profit margins pushing the limits, I'm skeptical about investing in Nvidia for 2025. There are cheaper options if you're looking to capitalize on the AI boom.
Instead, let's take a closer look at Amazon (AMZN 0.17%). Despite lagging behind the S&P 500 in the last five years, Amazon has the potential to make a comeback in 2025 and take the crown as the largest company by market cap.
Leveraging AI infrastructure
Amazon's bread and butter is Amazon Web Services (AWS), its leading cloud computing infrastructure. AWS is a major buyer of Nvidia chips, using them to build power-hungry AI tools that are booming like wildfire. The demand for AI is only growing, and AWS has been on a roll. Revenue growth started at 12% year-over-year in Q2 2023 and climbed to a whopping 19% in Q3 2024. And with an annualized revenue run rate topping $100 billion, AWS is showing no signs of slowing down.
Not to mention, AWS's operating margins are impressive. The trailing-12-month operating margin clocked in at 35%, pulling in $36 billion in operating income. As AI demand continues to grow, AWS is poised to accelerate its revenue growth even further in 2025. If revenue can expand by 25% that year, we're looking at a staggering $130 billion in revenue and $45.5 billion in operating income from AWS alone.
Retail and advertising galore
Amazon's retail empire isn't to be underestimated. With an impressive $377 billion in revenue in North America alone, and another $140 billion from international markets, Amazon's retail segment is a force to be reckoned with. North American profits should continue to climb, while high-margin segments like advertising will keep growing at a rate of 19% year over year. If margin expansion continues, we could expect North American retail profits to hit 10% by 2025, if not more.
Amazon's 2025 dominance
If these financial projections hold true, Amazon's overall operating earnings could soar to around $100 billion, marking a significant leap from the $60 billion it produced in the last 12 months. With its robust growth potential in AWS and expanding profit margins in the retail segment, Amazon is well-positioned to continue its financial ascent in the coming years. Investors will likely continue to assign it a high earning multiple, pushing its market cap closer to the $4 trillion mark – placing it atop the tech giants such as Nvidia, Apple, and Microsoft.
While these projections are promising, it's important to remember that the market is unpredictable. Investment decisions should always consider a variety of factors, including market trends, technological advancements, and investor sentiment.
Given Amazon's dominance in AI infrastructure through AWS, which is fueled by the demand for Nvidia chips, there could be opportunities for investing in related sectors. With the potential for AWS to accelerate its revenue growth in 2025 due to the increasing demand for AI, investors might consider allocating their money towards finance options that support this sector.
Given Amazon's strong financial performance, its potential for market capitalization growth in 2025 is significant. If Amazon's financial projections hold true, its market cap could approach or even surpass the $4 trillion mark, making it one of the largest companies globally.