The race for artificial intelligence (AI) is on and has a wide reach.
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Software companies (like Palantir Technologies And CrowdStrike) develop programs that use AI to analyze data, solve complex problems and ensure cybersecurity.
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Hardware companies make high-performance semiconductors that are critical to data centers. Nvidia is the current Titan.
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Real “picks and shovels” companies like Marvell technology manufacture Ethernet switches and accelerators.
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Cloud providers, like alphabet, MicrosoftAnd Amazon (NASDAQ:AMZN) Benefit from the immense data demand that AI creates.
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And even technology consulting experts like it Accenture Get a piece of the pie and help other companies get the most out of their AI tools.
Nvidia is on everyone’s lips as the stock has seen an incredible rise, around 220% in the last year and 440% in three years. As shown below, the market cap surpassed $2 trillion, overtaking Amazon for the first time in more than 20 years.
But that may not last long; Here are two important reasons why.
Amazon Web Services
Few companies offer the extensive cloud services needed to run AI programs that require massive data resources. The “big two” are Amazon Web Services (AWS) and Microsoft Azure, with AWS leading the world with around a third of the global market. Many investors have lost on Amazon shares in 2022 and 2023 because of AWS, but it’s always darkest before dawn.
AWS drew criticism in 2023 when its previously rapid growth collapsed, but I argue that investors should wait until companies update their data usage budgets in 2024 before jumping to conclusions. Companies typically budget their resources before the start of a new year. At the start of 2023, most people were preparing for a recession.
Amazon knew that budgets were tight, so it supported its customers by helping them reduce usage or switch to cheaper plans. The company knew that keeping long-term customers happy was more important than making a few extra dollars this year. In 2024, it’s a different story.
Recession talk has largely disappeared; AI is now taking center stage, and those same customers are now clamoring to use it. AI and larger data budgets fueled AWS and Amazon’s first-quarter profit growth. AWS revenue grew 17% year-over-year to $25 billion in the first quarter, compared to 13% year-over-year growth in the fourth quarter of 2023.
All the rest
AWS is turning heads, but its other two segments, North America and International, also posted strong quarters with revenues of $86 billion (12% growth) and $32 billion (10% growth), respectively. More importantly, consumer spending shows little sign of slowing, unemployment is low and a recession no longer appears to be imminent.
A source of income that I particularly like is advertising. As you can see below, advertising has become a cash cow in recent years.
This lucrative source of income should also benefit from companies loosening their budgets. Amazon’s ad business is popular because it targets consumers who are already willing to buy. Leveraging Amazon’s product placement, featured brands, and pay-per-click ad buying features are great ways to get ahead of the competition.
Finally, back to AI. Amazon has several irons in the fire. One of them is Amazon Bedrock. Bedrock offers Foundation Models (FMs) from multiple vendors that customers can customize to suit their needs. Many companies will want to see what generative AI can do to improve efficiency; This is a great opportunity to experiment. Another product is the Inferentia chip. Inferentia is an accelerator that allows users to run complex software at high speed.
Nvidia and Amazon are both great players; However, Amazon’s multiple revenue streams mean the stock is likely to outperform Nvidia next year.
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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. Bradley Guichard has held positions at Alphabet, Amazon, CrowdStrike and Nvidia. The Motley Fool has positions in and recommends Accenture Plc, Alphabet, Amazon, CrowdStrike, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends Marvell Technology and recommends the following options: long January 2025 $290 calls on Accenture Plc, long January 2026 $395 calls on Microsoft, short January 2025 $310 calls on Accenture Plc and January 2026 short calls above $405 on Microsoft. The Motley Fool has a disclosure policy.
Prediction: 1 Artificial Intelligence Stock That Could Be Worth More Than Nvidia in a Year was originally published by The Motley Fool