Nvidia shares are up over 180% since January 2024, and the stock has accounted for nearly one-quarter of gains in S&P 500(SNPINDEX: ^GSPC) during that period. The company is now worth $3.4 trillion and should continue to benefit from the artificial intelligence (AI) boom for many years to come. But public clouds could take the lead in 2025.
AI infrastructure investments made over the past two years are putting cloud computing companies at an advantage as companies turn AI prototypes into products this year. That 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 share 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 share price of $283.
Admittedly, both forecasts are aggressive. But Bloomberg Intelligence estimates that generative AI spending will grow 71% in 2025, and Wall Street may be underestimating how much Amazon and Alphabet will benefit.
Amazon reported solid third-quarter financial results, beating expectations on both the top and bottom lines. Revenue rose 11% to $159 billion, driven by particularly strong growth in cloud sales and advertising services. Operating margin increased by 5 percentage points to 9.8%, i non-GAAP (generally accepted accounting principles) earnings rose 52% to $1.43 per diluted share. Analysts expected earnings growth of 21%.
Amazon could continue to beat estimates as artificial intelligence (AI) spending increases. Amazon Web Services (AWS) accounted for 31% of public cloud services spending in the third quarter, almost as much as its 33% market share. Microsoft and Alphabet have merged. That scale is a key advantage. With more customers and partners, AWS is better positioned to monetize AI.
However, Amazon is also aggressively investing in AI product development. Its custom AI chips, Trainium and Inferentia, provide a cheaper alternative to Nvidia’s graphics processing units (GPUs). Its Bedrock platform enables developers to fine-tune pre-trained large language models and build generative AI applications. And its conversational assistant, Amazon Q, helps developers code, test and deploy software.
Wall Street estimates that Amazon’s earnings will increase by 26% over the next four quarters. That consensus makes the current valuation of 47 times earnings look very reasonable. But the company’s earnings could grow faster as demand for cloud-based AI services increases. In turn, that could warrant 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 (down from last year’s peak of 62 times earnings), its share price would rise 52% and its market value would reach 3 .5 trillion dollars. However, Amazon is a valuable 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 top-line and bottom-line estimates. Revenue increased 15% to $88 billion thanks to particularly strong sales growth in Google Cloud and modest growth in Google Services (advertising). Meanwhile, GAAP net income rose 37% to $2.12 per share. Analysts expected earnings growth of 19%.
Alphabet could continue to top estimates as demand for AI cloud services increases. Google Cloud gained 2 percentage points of market share last year, while Microsoft lost 3 percentage points. And Google’s investment in AI product development could keep that trend moving. Importantly, Google is the only company besides Amazon to deploy custom AI chips at scale, according to New Street Research.
More broadly, Google has a strong position in several AI product categories. Forrester research recently recognized for its leadership in artificial intelligence infrastructure solutions, machine learning platforms and underlying models of large languages. In one report, analyst Mike Gualtieri called Google the best-positioned hyperscaler for AI and said the company offers enough differentiation to win customers from other public clouds.
Wall Street estimates Alphabet’s earnings will grow 14% over the next four quarters, making the current valuation of 26 times earnings look fair. But generative AI spending could lead to above-consensus earnings, and the valuation multiple could widen when investors have more clarity on the outcome of an antitrust case involving Google Search later this year.
Together, those 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 earnings when that period ends, the price its stock would rise 46% and the company would be worth $3.5 trillion. However, Alphabet is a worthwhile long-term investment, even if my prediction doesn’t pan out.
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Suzanne Frey, CEO of 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 Jennewine holds positions at Amazon and Nvidia. The Motley Fool has positions and recommends Alphabet, Amazon and Nvidia. The Motley Fool has a disclosure policy.
