Prediction: 1 stock that will be worth more than Nvidia in 5 years

Market capitalization is the total value of a company’s shares, or the number of shares, multiplied by the stock price. It doesn’t tell us anything about a company’s performance or prospects, but it does give us some idea of ​​what the market thinks of the company. The more popular a stock is, the more likely it is to have a high market capitalization. However, most emerging companies have low market capitalization because they have not started growing. So it’s a combination of investor sentiment and performance.

The most valuable companies on the stock market these days are big tech stocks, with Apple, Nvidia, and Microsoft occupying the top three spots, although these three spots have changed hands several times over the past few months. But you might be surprised to find that most of the next most valuable companies are big, old value stocks like Berkshire Hathaway (which just achieved multi-trillion dollar status), Walmart, and Visa.

Nvidia’s stock is up 250% over the past year, helping the company leapfrog old standards and reach the pinnacle of market capitalization. The company is on fire, with customers lining up to buy graphics processing units (GPUs) that power its generative artificial intelligence (AI), and reporting impressive sales and profit growth. But are competitors catching up?

Amazon (AMZN -3.28%) is also one of the Nvidia clients that is building its own chips. But you can do more than that. The company makes more money than Nvidia, Apple, and Microsoft, but is only the fifth most valuable company on the market. Nvidia is tied with Apple at about $3.5 trillion, while Amazon is far behind at about $2 trillion. Here’s why Amazon could outgrow Nvidia over the next five years.

Amazon has no competition

Amazon’s artificial intelligence efforts have garnered a lot of attention, but for now they are just a small part of Amazon’s vast empire. Amazon controls more than a third of all U.S. e-commerce, which provides the revenue that supports the entire company.

Not only is Amazon likely to maintain that lead, but it can do so by improving its logistics network, shortening delivery times, adding more products, and making Prime members even more dependent on its business. We also have the opportunity to expand. These things are already happening. E-commerce is also growing faster than brick-and-mortar stores, which means more organic growth for Amazon.

Generative AI is a new part of Amazon Web Services (AWS), Amazon’s cloud computing business. To strengthen this business, the company has launched a series of services targeting all needs, not to compete with leader Nvidia, but to offer an economical alternative to customers who want better pricing. We are developing our own processing chip to provide this service. AWS is the world leader in cloud computing and generates a large portion of the company’s operating income, just as e-commerce generates revenue.

NVIDIA, on the other hand, has some inherent risks in its narrower business. Generative AI is today’s hottest technology trend, making it vulnerable to new competition from very formidable giants like Apple and Advanced Micro Devices. That, combined with soaring valuations, is causing some investors to exit the investment now.

Can Amazon make the leap?

Well, Amazon has what it takes to keep rising. But will it ever be worth more than NVIDIA? Currently, NVIDIA’s market capitalization is about 1.5 times that of Amazon. To simplify, to match Nvidia’s total stock price, Amazon’s stock would need to rise 75%, or NVIDIA would need to lose almost 45% of its value, or some combination.

Let’s say Amazon can increase its revenue by 50% over the next five years. This means an average annual growth rate of 8.4%, which is lower than the current growth rate. If you keep the price-to-sales ratio the same, market capitalization increases by 50%. Amazon’s stock is already up nearly 50% in the past year, and given tailwinds and improvements, it’s likely to rise even more significantly over the next five years.

The question is whether Nvidia will slow down. It should still be a significant GPU player five years from now, but there will be many other players and new trends may emerge to take over AI. By contrast, it’s easy for Amazon to grow and create shareholder value. And within five years, the company will gain several spots on the market cap list, overtaking Nvidia and other stocks along the way.