Title: Two AI Stocks Poised to Surpass Nvidia's Value by Year-End 2025
Nvidia's shares have soared an impressive 180% since January 2024, contributing significantly to the S&P 500's gains during this period. The tech giant now holds a staggering market value of $3.4 trillion, largely benefiting from the ongoing AI boom. However, public clouds are predicted to take the limelight in 2025, potentially challenging Nvidia's momentum.
This transition in focus poses an opportunity for tech giants like Amazon and Alphabet. Their respective market values of $2.3 trillion and $2.4 trillion could increase significantly by the end of 2025, surpassing Nvidia's current market value. To achieve these ambitious targets, Amazon and Alphabet would need returns of 52% and 46%, translating into share prices of $338 and $283, respectively.
These projections may seem aggressive, but Bloomberg Intelligence anticipates a 71% surge in generative AI spending in 2025. This potential underestimation could mean both Amazon and Alphabet may reap substantial benefits from the AI boom.
Amazon: Aggressive Growth Potential
Amazon reported impressive Q3 financial results, outperforming expectations on both revenue and earnings. The company's revenue grew by 11% to $159 billion, primarily driven by strong sales in cloud and advertising services, while operating margin expanded to 9.8%.
Amazon's AI divisions, such as AWS and its custom AI chips, Trainium and Inferentia, position the tech giant favorably in the AI landscape. AWS's 31% share of public cloud services spending in Q3 is a testament to this advantage. Moreover, platforms such as Bedrock, which allows developers to fine-tune AI, and Amazon Q, a conversational assistant for coding, further bolster Amazon's AI game.
Exceeding market estimates, Amazon's earnings growth could potentially propel the company's valuation beyond Nvidia's current market value. If the company's earnings growth reaches 35% in the next four quarters, and shares trade at a 54-times earnings multiple, Amazon's market value could reach $3.5 trillion, a 52% increase from its current market value.
Alphabet: Steady Growth and Competitive Advantage
Alphabet reported strong Q3 results, surpassing expectations on both revenue and earnings. Google Cloud's market share growth and Google's investments in AI product development were key drivers of the company's success.
Alphabet's custom AI chips and leadership in AI product categories, including AI infrastructure solutions, machine learning platforms, and large language models, place it in a strategic position to capitalize on the AI boom. Currently deploying AI chips at scale, Google is distinguished from its competitors in this regard.
Wall Street estimates Alphabet's earnings growth at 14% in the next four quarters, which appears fair considering its current valuation of around 26-times earnings. With the potential for above-consensus earnings and expanded valuation multiples due to increased generative AI spending and resolution of antitrust cases involving Google Search, Alphabet could challenge Nvidia's market value by 2025. If earnings grow by 25% and shares trade at a 30-times earnings multiple, Alphabet could surpass Nvidia's market value with a 46% share price increase.
Despite the competitive landscape, both Amazon and Alphabet present compelling investment opportunities, with their robust AI offerings and market dominance. Even if they don't surpass Nvidia's current market value by the end of 2025, these tech giants remain valuable long-term investments.
Investors looking to capitalize on the AI boom might consider investing in tech giants like Amazon and Alphabet. With projected generative AI spending surging by 71% in 2025, these companies have the potential to significantly increase their market values.
Investing in Amazon could potentially yield high returns, as its earnings growth of 35% in the next four quarters, paired with a 54-times earnings multiple, could push the company's market value to $3.5 trillion, surpassing Nvidia's current market value.
