The technology sector is currently experiencing something of a renaissance, with advances in artificial intelligence (AI) driving renewed investor interest.
Among the companies with the greatest AI investment opportunities are a small group of big technology companies collectively known as the “Magnificent Seven.” Over the past year and a half, semiconductor companies NVIDIA (NASDAQ: NVDA) He achieved a 628% return, more than any other member of the Magnificent Seven.
There's no doubt that Nvidia is playing a big role in the AI revolution and the short-term outlook is very bright, but what about the long-term?
Among the members of the Magnificent Seven, Amazon (Nasdaq: AMZN) As a great investment opportunity, let's explore why Nvidia is doing so well right now and evaluate the chipmaker's long-term prospects against Amazon.
Nvidia is super strong, but the competition continues
Generative AI applications such as training large language models, machine learning, and accelerated computing rely on several critical components: advanced semiconductor chips called graphics processing units (GPUs), and data center network services are essential for AI use cases.
Nvidia is conveniently located at the intersection of GPUs and data center operations: The company is currently estimated to have 80% of the addressable market for AI chips.
This overwhelming lead translated into record revenue, profit margins and cash flow.
The slope of the line in the graph above highlights Nvidia's advantage. Demand for the company's chips and data center services is strong, giving Nvidia pricing power in its favor. But Advanced Micro Devices and Intel We are developing an alternative GPU suite.
While neither company has anywhere near Nvidia's market share at the moment, the secular tailwinds driving AI suggest Nvidia may have a chance to catch up as it faces challenges matching customer demand trends with supply.
And it's not just competition from other chip companies that Nvidia faces. Meta Platform Microsoft and Amazon are working on developing their own in-house developed chips to wean themselves off reliance on Nvidia.
Neither company is likely to move on from Nvidia anytime soon, but in the long term, some of Nvidia's biggest customers may not be as big a source of growth in a few years' time.
Why Amazon is a better investment
Today, Amazon is best known for its e-commerce marketplace and cloud computing infrastructure, Amazon Web Services (AWS), but there are many other business opportunities within the Amazon ecosystem, including streaming, grocery delivery, and advertising.
This diversification is why I'm most optimistic about Amazon's long-term prospects, as the company has a unique opportunity to expand its impact by integrating AI across its business.
One of the most profitable moves Amazon has made already is its $4 billion investment in AI startup Anthropic, which uses AWS as its primary cloud provider and trains its generative AI models on Amazon's own chips.
Additionally, Amazon recently announced that it will spend $11 billion to build out its data centers, which I think is a big sign that the company is serious about moving away from Nvidia in the long term.
While the long-term benefits of these projects are probably years away, I am optimistic that Amazon is laying the foundation for sustained growth. Looking at it another way, Nvidia is currently enjoying triple-digit revenue and profit growth, but I doubt the company can sustain such momentum. Meanwhile, I believe Amazon is only just scratching the surface of a new wave of AI-driven, aggressively ambitious services.
Conclusion
Whether you choose Nvidia or Amazon, you can't go wrong. Both companies are operating from strong positions and each offers attractive investment prospects.
That being said, Nvidia's stock has soared in recent years. Given the ongoing race in both data center services and AI-powered chips, I don't see Nvidia maintaining its lead. Ultimately, I think we'll see customers expand their AI infrastructure and supplement existing Nvidia services with those from other vendors.
As a result, this trend will lead to a slowdown in revenue and profitability for Nvidia over the next few years.By contrast, Amazon already boasts more than $50 billion in free cash flow and $84 billion in cash and cash equivalents on its balance sheet.
Amazon is in a very good financial position and has the flexibility to continue to double down on its AI efforts, which will likely result in Amazon becoming a more sophisticated company and ultimately surpassing Nvidia in value.
Given the difference in valuation multiples, I plan to accumulate Amazon shares and hold for the long term. Nvidia is trading at a noticeable premium and future growth is likely priced into the stock price. To me, Amazon's position in the AI space is undervalued and the stock looks very cheap at the moment. I would encourage investors to take advantage of this discount and continue to monitor the company's progress.
Should I invest $1,000 in Amazon right now?
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John Mackey, former CEO of Amazon subsidiary Whole Foods Market, is a member of The Motley Fool's board of directors. Randi Zuckerberg, former director of market development and communications at Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Adam Spatacco has invested in and recommends Amazon, Meta Platforms, and Nvidia. The Motley Fool has invested in and recommends Advanced Micro Devices, Amazon, Meta Platforms, and Nvidia. The Motley Fool recommends Intel and recommends buying Intel's January 2025 $45 calls and selling Intel's May 2024 $47 calls. The Motley Fool has a disclosure policy.
Prediction: These 'Magnificent Seven' artificial intelligence (AI) stocks could be a better investment than Nvidia over the next five years This was originally published by The Motley Fool.
