Nvidia has significantly outperformed other artificial intelligence (AI) stocks over recent years, largely due to its dominant position in the sector. With an 80% share in the AI chip market, the company has consistently posted triple-digit revenue growth each quarter, propelling its stock price up by more than 2,200% over the past five years.
In contrast, other leading technology companies, such as Apple and Alphabet, experienced more modest double or triple-digit share price increases in the same period.
Although I anticipate Nvidia will remain a strong stock in the long run, a different company could surpass it by the year’s end. Concerns have arisen among investors regarding Nvidia’s heavy reliance on AI revenue amid an unpredictable economy and the growing competition in the chip market. Indeed, Nvidia’s momentum has already waned slightly, with its stock dropping 12% over the last three months.
Investors might consider pivoting to another company that not only benefits from the AI surge but also generates substantial revenue from diverse business segments. This company could prove more robust in a challenging or uncertain economic climate, and I predict this AI stock will outperform Nvidia by the end of the year. Let’s delve deeper into this possibility.
This stock is a well-known brand
The stock I foresee outperforming Nvidia by year-end is Amazon. Its flourishing e-commerce sector, which includes essentials, general merchandise, various devices, books, and movies, has earned it the status of a household name, especially due to its Prime subscription service, boasting over 200 million members.
This robust customer base enabled Amazon to report more than $121 billion in revenue from North America and international markets in the latest quarter, showing year-over-year growth in both regions.
Furthermore, Amazon may witness an increase in Prime sign-ups soon, with another Prime Big Deal Days sales event slated for October. These exclusive discounts for Prime members are known to enhance membership numbers.
Moreover, Amazon excels at retaining members. According to Statista, 72% of users subscribed to Prime after a 30-day trial period last year.
Despite economic fluctuations, consumers perceive value in a Prime subscription because it offers competitive prices on essentials and promises fast, free delivery.
Beyond this reliable revenue stream, investors can also capitalize on growth from Amazon Web Services (AWS), its cloud computing division, which showcases the company’s AI capabilities. AWS provides a wide array of cloud services and is deeply invested in AI, offering its own cost-effective chips, premium Nvidia chips, a comprehensive AI platform called Amazon Bedrock, and much more.
Management’s objective is to be engaged in every aspect of AI—from chips powering programs to applications.
Amazon’s profit powerhouse
These efforts have enabled AWS to achieve an annual revenue run rate of $105 billion this year, which is crucial since AWS has traditionally been Amazon’s primary profit generator. In the latest quarter, AWS accounted for 63% of Amazon’s total operating income.
Recently, Nvidia’s growth has outshined that of Amazon and other tech giants, impressing investors. However, as market sentiment grows more cautious, investors might shift towards companies like Amazon that are involved in AI but are less reliant on it than Nvidia. Presently, both companies are trading at similar levels, around 37 times forward earnings estimates, making Amazon appear as a safer investment at this price point.
This doesn’t imply that Nvidia and the AI market won’t fulfill their potential in the upcoming years; I believe any short-term market uncertainty won’t alter this thrilling long-term narrative.
Nonetheless, I predict that Nvidia, having recently lost some momentum, may create opportunities for other companies to excel in share price performance in the coming months. Amazon is likely to seize the lead.
