Nvidia came to the world in 2024. The semiconductor company is the largest seller of computer chips for artificial intelligence (AI) data centers, where demand is increasing significantly. Nvidia’s revenue and profits have skyrocketed in recent years, and investors have become extremely bullish on the stock. As of this writing, Nvidia has a market capitalization of $3.46 trillion, making it the world’s largest company by market capitalization.
2025 will be the year of the Empire Strikes Back, and as semiconductor supply chains catch up with demand for AI products, the remaining big tech companies will also regain their footing in negotiations. Who will it benefit the most? My bet is Amazon (AMZN -0.24%)is the world’s largest cloud computing company and is the backbone of many rapidly growing AI tools.
Amazon’s cloud computing division, in addition to its dominant e-commerce business, could end 2025 with the world’s largest market capitalization. Here’s why:
Profit margin steadily expands
Unlike other big tech companies that already boast very high profit margins, Amazon’s profitability remains significantly undervalued because it tends to invest for future growth. Last year, we started to see the company finally starting to put its foot on the gas, and I think this trend will continue into 2025.
Over the past 12 months through September, Amazon posted an operating profit margin of 9.8%, a record high. Part of this was due to Amazon Web Services’ (AWS) cloud computing division, which had an operating margin of 35%. Although we expect AWS margins to remain strong, this segment still represents less than 20% of Amazon’s overall sales.
The margin expansion was primarily driven by Amazon’s strong North American e-commerce business, which posted an operating margin of 5.9% over the past 12 months. Although still at a compressed level, Amazon has the potential to further increase its segment margins, especially given that it brings in tens of billions in high-margin third-party e-commerce fees, subscription fees, and advertising sales each year. There is plenty of room to improve. It will rise even higher in 2025.
It won’t happen overnight, but if Amazon wants to, it could easily end 2025 with a 15%, maybe 20%, profit margin. The only question is how efficient the spending on research projects like Alexa will be.
Artificial intelligence boom over the years
There is a clear path for Amazon to expand its margins in 2025. There’s also reason to believe Amazon will continue to accelerate its revenue growth, especially on AWS.
AWS net revenue growth increased to 19% year over year last quarter, up from 12% in the third quarter a year ago. The boom in AI spending is expected to continue into 2025, and capital spending budgets seem to be increasing by the day. This is good for AWS because increased capital spending means increased demand for AI computing power, which means increased revenue for AWS. In fact, famous investor SoftBank has announced that it will invest $100 billion in AI in the United States. Not all of this will be spent on AWS data centers, but this trend will continue.
If AWS can grow revenue by 30% over the next 12 months as more and more AI demands are met, the segment could reach $134 billion in revenue and help accelerate Amazon’s consolidated revenue growth. It will be.
NVDA Operating Margin (TTM) data by YCharts.
Why Amazon can end 2025 as the world’s largest company
My belief that Amazon will finish as the world’s largest company in 2025 depends primarily on AWS accelerating revenue growth and expanding consolidated profit margins. Here’s the math showing why this happens:
Amazon’s trailing 12-month sales were $620 billion, and last quarter’s sales were up 11% from a year earlier. If revenue growth can accelerate to 15% over the next 12 months, annual sales will reach $713 billion. That’s a staggering amount, but it shows the huge market Amazon is chasing in e-commerce, retail, and cloud computing.
As explained above, Amazon has room to grow its operating margin to nearly 20% in 2025. Although we are not convinced that it will reach exactly 20%, we should have high confidence in the general direction of this indicator in 2025. If Amazon stops investing in research projects, its profit margins could rise even further to more than 20%.
A 20% profit margin on $713 billion in revenue equates to $142.6 billion in operating income. That’s more than the operating profits Nvidia, Apple, and Microsoft generated over the past 12 months. Although it’s not a guarantee, I believe that the companies that generate the highest profits, especially those with growth potential like Amazon, should have the largest market capitalizations in the world. For this reason, I think Amazon will end 2025 as the world’s largest stock by market capitalization, making it a good buy for your portfolio right now.
John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of the Motley Fool’s board of directors. Brett Shafer has a position at Amazon. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: A long January 2026 $395 call on Microsoft and a short January 2026 $405 call on Microsoft. The Motley Fool has a disclosure policy.
