Nvidia shares have surged over 180% since January 2024, and the stock accounted for nearly one-quarter of the gains within the S&P 500(SNPINDEX: ^GSPC) during that period. The corporate is now value $3.4 trillion and may proceed to profit from the factitious intelligence (AI) boom for a few years to come back. But public clouds may take the momentum lead in 2025.
Investments in AI infrastructure made within the last two years position cloud computing corporations to profit as businesses turn AI prototypes into products this 12 months. That leaves room for Amazon(NASDAQ: AMZN) and Alphabet(NASDAQ: GOOGL)(NASDAQ: GOOG) to surpass Nvidia’s current market value before the tip of 2025:
Amazon is currently value $2.3 trillion. The stock would wish to return 52% for its market value to succeed in $3.5 trillion. That suggests a share price of $338.
Alphabet is currently value $2.4 trillion. The stock would wish to return 46% for its market value to succeed in $3.5 trillion. That suggests a share price of $283.
Admittedly, each predictions are aggressive. But Bloomberg Intelligence estimates generative AI spending will grow 71% in 2025, and Wall Street could also be underestimating how much Amazon and Alphabet will profit.
Amazon reported solid financial ends in the third quarter, beating expectations on the highest and bottom lines. Revenue increased 11% to $159 billion on especially strong sales growth in cloud and promoting services. Operating margin expanded 5 percentage points to 9.8%, and non-GAAP (generally accepted accounting principles) earnings soared 52% to $1.43 per diluted share. Analysts expected earnings to grow 21%.
Amazon could proceed to exceed estimates as artificial intelligence (AI) spending increases. Amazon Web Services (AWS) accounted for 31% of public cloud services spending within the third quarter, nearly as much because the 33% market share Microsoft and Alphabet had combined. That scale is a key advantage. With more customers and partners, AWS is healthier positioned to monetize AI.
Nonetheless, Amazon can also be investing aggressively in AI product development. Its custom AI chips, Trainium and Inferentia, provide a less expensive alternative to Nvidia graphics processing units (GPUs). Its Bedrock platform enables developers to fine-tune pretrained large language models and construct generative AI applications. And its conversational assistant, Amazon Q, helps programmers code, test, and deploy software.
Wall Street estimates Amazon’s earnings will increase 26% over the following 4 quarters. That consensus makes the present valuation of 47 times earnings look very reasonable. But the corporate’s earnings could grow more quickly as demand for cloud AI services increases. In turn, which will justify a better valuation and push the corporate’s market value to $3.5 trillion.
For example, if Amazon’s earnings grow 35% in the following 4 quarters and shares trade at 54 times earnings (below its peak of 62 times earnings previously 12 months), its share price would increase 52% and its market value would reach $3.5 trillion. Nonetheless, Amazon is a worthwhile long-term investment even when the corporate fails to surpass Nvidia’s current market value by the tip of 2025.
Alphabet reported encouraging financial ends in the third quarter, beating estimates on the highest and bottom lines. Revenue increased 15% to $88 billion on especially strong sales growth in Google Cloud and modest growth in Google services (promoting). Meanwhile, GAAP net income increased 37% to $2.12 per diluted share. Analysts expected earnings to grow 19%.
Alphabet may proceed to top estimates as demand for AI cloud services increases. Google Cloud gained 2 percentage points of market share previously 12 months, while Microsoft lost 3 percentage points. And Google’s investments in AI product development may keep that trend in motion. Importantly, Google is the one company besides Amazon to deploy custom AI chips at scale, in keeping with Latest Street Research.
More broadly, Google has a robust position in several AI product categories. Forrester Research recently recognized its leadership in AI infrastructure solutions, machine learning platforms, and foundational large language models. In a single report, analyst Mike Gualtieri called Google the hyperscaler best positioned for AI and said the corporate offers enough differentiation that it could win clients from other public clouds.
Wall Street estimates Alphabet’s earnings will increase 14% in the following 4 quarters, which makes its current valuation of 26 times earnings look fair. But generative AI spending may lead to above-consensus earnings, and the valuation multiple could expand once investors have more clarity on the consequence of the antitrust case involving Google Search later this 12 months.
Collectively, those tailwinds could help Alphabet surpass Nvidia’s current market value by the tip of 2025. For example, if earnings increase 25% over the following 4 quarters and the stock trades at 30 times earnings when that period ends, its share price would advance 46% and the corporate can be value $3.5 trillion. Nonetheless, Alphabet is a worthwhile long-term investment, even when my prediction doesn’t pan out.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Idiot’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of directors. Trevor Jennewine has positions in Amazon and Nvidia. The Motley Idiot has positions in and recommends Alphabet, Amazon, and Nvidia. The Motley Idiot has a disclosure policy.