Nvidia shares have surged more than 180% since January 2024, and the stock has accounted for nearly a quarter of the stock’s gains S&P500(INDEXSNP: ^GSPC) during this period. The company is now worth $3.4 trillion and is expected to continue to benefit from the artificial intelligence (AI) boom for many years to come. But public clouds could take the lead in 2025.
Investments in AI infrastructure made over the past two years allow cloud computing companies to benefit as companies turn AI prototypes into products this year. This leaves room for Amazon(NASDAQ:AMZN) And Alphabet(NASDAQ:GOOGL)(NASDAQ:GOOG) exceed Nvidia’s current market value before the end of 2025:
Amazon is currently worth $2.3 trillion. The stock would need to return 52% for its market value to reach $3.5 trillion. This implies a stock price of $338.
Alphabet is currently worth $2.4 trillion. The stock would need to return 46% for its market value to reach $3.5 trillion. This implies a stock price of $283.
Certainly, both predictions are aggressive. But Bloomberg Intelligence estimates that spending on generative AI will increase 71% in 2025, and Wall Street may be underestimating the benefits Amazon and Alphabet will reap.
Amazon reported strong third-quarter financial results, beating expectations for revenue and bottom line. Revenue rose 11% to $159 billion, driven by particularly strong sales growth in cloud and advertising services. Operating margin increased by 5 percentage points to 9.8%, and non-GAAP (generally accepted accounting principles) earnings soared 52% to $1.43 per diluted share. Analysts had expected earnings growth of 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 the 33% market share. Microsoft and Alphabet had combined. This scale is a key advantage. With more customers and partners, AWS is better positioned to monetize AI.
However, Amazon is also investing aggressively in AI product development. Its custom AI chips, Trainium and Inferentia, offer a cheaper alternative to Nvidia 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 increase 26% over the next four quarters. This consensus makes the current valuation of 47 times earnings very reasonable. But the company’s profits could grow faster as demand for cloud AI services increases. This in turn could justify a higher valuation and push 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 (below its peak of 62 times earnings last year), the price of its stock would increase by 52% and its market value would reach $3.5 trillion. . However, Amazon is a profitable long-term investment, even if the company fails to surpass Nvidia’s current market value by the end of 2025.
Alphabet reported encouraging third-quarter financial results, beating revenue and profit estimates. Revenue rose 15% to $88 billion, driven by particularly strong growth in Google Cloud sales and modest growth in Google Services (advertising). Meanwhile, GAAP net income increased 37% to $2.12 per diluted share. Analysts had expected earnings growth of 19%.
Alphabet could continue to beat estimates as demand for AI cloud services increases. Google Cloud gained 2 percentage points of market share over the past year, while Microsoft lost 3 percentage points. And Google’s investments in AI product development could keep this trend going. Importantly, Google is the only company besides Amazon deploying custom AI chips at scale, according to New Street Research.
More broadly, Google has a strong position in several AI product categories. Forrester Search recently recognized its leadership in AI infrastructure solutions, machine learning platforms and large foundational language models. In a report, analyst Mike Gualtieri called Google the best-positioned hyperscaler for AI and said the company offers enough differentiation to be able to win customers from other public clouds.
Wall Street estimates that Alphabet’s earnings will grow 14% over the next four quarters, making its current valuation of 26 times earnings seem fair. But spending on generative AI could lead to earnings above consensus, and the valuation multiple could rise once investors have more clarity on the outcome of the antitrust case involving Google search later this year.
Collectively, these tailwinds could help Alphabet surpass Nvidia’s current market value by the end of 2025. For example, if earnings grow 25% over the next four quarters and the stock trades at 30 times profits at the end of this period, its stock price would increase by 46%. % and the company would be worth $3.5 trillion. However, Alphabet is a profitable long-term investment, even if my prediction doesn’t come true.
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Suzanne Frey, an executive at Alphabet, 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 Jennevine has positions on Amazon and Nvidia. The Motley Fool holds positions and recommends Alphabet, Amazon and Nvidia. The Mad Motley has a disclosure policy.
