NVIDIA Shares are up more than 180% since January 2024, with shares accounting for nearly a quarter of the gains in the S&P 500(SNPINDEX: ^GSPC) during that period. The company is now worth $3.4 trillion and should continue to benefit from the rise of artificial intelligence (AI) for many years to come. But public clouds may take the lead in 2025.
Investments in AI infrastructure made over the past two years position cloud computing companies to benefit as companies turn AI prototypes into products this year. That leaves room for Amazon(NASDAQ:AMZN) and Alphabet(NASDAQ:GOOGL)(NASDAQ:GOOG) surpass Nvidia’s current market value before the end of 2025:
Amazon is currently worth $2.3 trillion. The stock would need a 52% return for its market value to reach $3.5 trillion. That implies a share price of $338.
Alphabet is currently worth $2.4 trillion. The stock would need a 46% return for its market value to reach $3.5 trillion. That implies a share price of $283.
It is true that both predictions are aggressive. But Bloomberg Intelligence estimates that spending on generative AI will grow 71% in 2025, and Wall Street may be underestimating how much Amazon and Alphabet will benefit.
Amazon reported strong financial results in the third quarter, beating expectations on the results. Revenue rose 11% to $159 billion thanks to especially strong sales growth in advertising and cloud services. Operating margin expanded 5 percentage points to 9.8%, and non-GAAP earnings soared 52% to $1.43 per diluted share. Analysts expected earnings to grow 21%.
Amazon could continue to beat estimates as spending on artificial intelligence (AI) increases. Amazon Web Services (AWS) accounted for 31% of spending on public cloud services in the third quarter, almost as much as 33% market share. microsoft and Alphabet had combined. That scale is a key advantage. With more customers and partners, AWS is better positioned to monetize AI.
However, Amazon is also investing aggressively in developing AI products. Its custom AI chips, Trainium and Inferentia, offer a cheaper alternative to Nvidia’s graphics processing units (GPUs). Its Bedrock platform allows developers to fine-tune large pre-trained language models and create generative AI applications. And its conversational assistant, Amazon Q, helps programmers code, test, and deploy software.
Wall Street estimates that Amazon’s profits will rise 26% over the next four quarters. That consensus makes the current valuation of 47 times earnings look very reasonable. But the company’s profits could grow more quickly as demand for cloud-based AI services increases. In turn, that may justify a higher valuation and lift the company’s market value to $3.5 trillion.
For example, if Amazon’s earnings grow 35% over the next four quarters and the stock trades at 54 times earnings (down from its high of 62 times earnings last year), its share price would rise 52 times earnings. % and its market value would reach 3.5 billion dollars. . However, Amazon is a worthwhile investment in the long term, even if the company fails to surpass Nvidia’s current market value by the end of 2025.
Alphabet reported encouraging financial results in the third quarter, beating estimates on the results. Revenue rose 15% to $88 billion thanks to especially strong sales growth in Google Cloud and modest growth in Google Services (advertising). Meanwhile, GAAP net income rose 37% to $2.12 per diluted share. Analysts expected earnings to grow 19%.
Alphabet may continue to beat estimates as demand for cloud AI services increases. Google Cloud gained 2 percentage points of market share last year, while Microsoft lost 3 percentage points. And Google’s investments in AI product development may keep that trend moving. Importantly, Google is the only company besides Amazon to deploy custom AI chips at scale, according to New Street Research.
More broadly, Google has a strong position in several AI product categories. Forrester Research recently recognized its leadership in AI infrastructure solutions, machine learning platforms, and fundamental large language models. In a report, analyst Mike Gualtieri called Google the best-positioned hyperscaler for AI and said the company offers enough differentiation to win customers from other public clouds.
Wall Street estimates that Alphabet’s earnings will rise 14% over the next four quarters, making its current valuation of 26 times earnings look fair. But generative spending on AI could lead to above-consensus earnings, and the valuation multiple could expand once investors have more clarity on the outcome of the antitrust case involving Google Search later this year.
Together, those tailwinds could help Alphabet surpass Nvidia’s current market value by the end of 2025. For example, if earnings rise 25% over the next four quarters and the stock trades at 30 times earnings when At the end of that period, its share price would rise 46%. % and the company would be worth $3.5 billion. However, Alphabet is a worthwhile investment in the long run, even if my prediction doesn’t come true.
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Alphabet executive Suzanne Frey is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions at Amazon and Nvidia. The Motley Fool has positions and recommends Alphabet, Amazon and Nvidia. The Motley Fool has a disclosure policy.
Prediction: 2 AI Stocks Will Be Worth More Than Nvidia by Year-End in 2025 was originally published by The Motley Fool
