Nvidia (NASDAQ: NVDA) Share prices are up 650% since January 2023. As a result, the market capitalization has increased from $360 billion to $2.7 trillion in less than two years. Demand for artificial intelligence (AI) systems was the driving force behind this price increase.
Amazon (NASDAQ: AMZN) And Alphabet (NASDAQ: GOOGL) (NASDAQ: GOOG) are currently worth $1.8 trillion and $2.2 trillion respectively. However, both companies could surpass Nvidia’s current valuation within four years, meaning they could be worth at least $2.8 trillion by mid-2028.
Here are the important details.
1. Amazon
Amazon reported excellent financial results in the first quarter, exceeding expectations on both the top and bottom lines. Revenue rose 13% to $143 billion as sales of advertising and cloud computing accelerated. Meanwhile, net income under generally accepted accounting principles (GAAP) tripled to $0.98 per diluted share. Investors have good reason to think the momentum will continue.
The investment thesis for Amazon centers on its strong presence in e-commerce, digital advertising and cloud computing, markets that are expected to grow 11%, 15% and 21% annually through 2030, respectively. Amazon is the most visited online marketplace in the world, and its influence in retail has grown into a robust digital advertising business. Specifically, Amazon is the largest retail advertiser in the US and the third largest ad technology company in the world.
Amazon uses artificial intelligence (AI) to increase sales and increase the efficiency of its e-commerce and advertising operations. For example, machine learning models optimize warehouse inventory and last-mile delivery routes, and a new generative AI tool helps brands create marketing content cost-effectively. Amazon has also moved to multiple regional fulfillment networks (instead of one centralized network) and introduced advertising on Prime Video. These changes are not strictly related to AI, but they should increase profitability.
Meanwhile, Amazon Web Services (AWS) is the largest provider of cloud infrastructure and platform services. The company lost a percentage point of market share over the past year, but remains well positioned to benefit from AI. Public clouds are the most cost-efficient way for companies to get the computing power needed to build and run AI applications, so AWS has a significant advantage in its market leadership. However, the company has also expanded its portfolio with new products such as Amazon Bedrock.
Wall Street expects Amazon to grow revenue 10.9% annually over the next five years, a reasonable estimate given the rate at which its major markets are expected to grow. Assuming Wall Street is right, the stock could reach a market cap of $2.8 trillion within four years if shares trade at 3.1 times sales by mid-2028. That seems reasonable considering shares currently trade at 3.2 times sales.
What would that mean for investors? If Amazon is worth $2.8 trillion by mid-2028, shareholders will earn an annual return of approximately 11.6% (relative to the current market cap of $1.8 trillion). These gains would probably be the S&P500 (SNPINDEX: ^GSPC)as the index has risen 10% annually (more or less) over long periods of time.
2. Alphabet
Alphabet looked strong in the first quarter. Revenue rose 15% to $80.5 billion thanks to particularly strong revenue growth in Google Cloud and modest revenue growth in Google Advertising. Meanwhile, net income rose 61% to $1.89 per diluted share as the company continued to focus on cost management.
The investment thesis for Alphabet centers on its strong presence in digital advertising and cloud computing, with the markets expected to grow at 15% and 21% annually, respectively. Alphabet is the largest ad tech company in the world, thanks in large part to its dominance in Internet search. Alphabet is experimenting with generative AI to strengthen that dominance. For example, CEO Sundar Pichai says the recently launched AI summaries will increase Google Search usage and user satisfaction.
Similarly, Google Cloud is the third-largest provider of cloud infrastructure and platform services, but the company has gained a percentage point of market share over the past year and the recent launch of Gemini could maintain that momentum. Gemini is a multimodal AI model (meaning it can be augmented with text, images, video, and other media) that Google Cloud customers can use to build generative AI applications.
Wall Street expects Alphabet to grow revenue 10.5% annually over the next five years, a reasonable estimate (perhaps a bit low) given the rate at which its major markets are expected to grow. Assuming Wall Street is right, the company could reach a market cap of $2.8 trillion within four years if its shares trade at 5.9 times sales by mid-2028. That seems easy to do, considering shares currently trade at 7.1 times sales.
What would that mean for investors? If Alphabet is worth $2.8 trillion by mid-2028, shareholders will see an annual return of just over 6% (from the current market cap of $2.2 trillion). Those gains would likely underperform the S&P 500. That said, I think Alphabet will be worth more than $2.8 trillion in four years, and I expect the stock to beat the market between now and then.
Should You Invest $1,000 in Amazon Now?
Before you buy stock in Amazon, consider this:
The Motley Fool stock advisor The analyst team has just identified what they think is the 10 best stocks for investors to buy now… and Amazon wasn’t one of them. The ten stocks that survived the cut could deliver monster returns in the coming years.
Think about when Nvidia created this list on April 15, 2005… if you had $1,000 invested at the time of our recommendation, you would have $677,040!*
Stock Advisor provides investors with an easy-to-follow blueprint for success, including portfolio building guidance, regular analyst updates, and two new stock picks per month. The Stock Advisor is on duty more than quadrupled the return of the S&P 500 since 2002*.
View the 10 stocks »
*Stock Advisor returns May 28, 2024
Suzanne Frey, a director at 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 Jennevine has positions at Amazon and Nvidia. The Motley Fool holds positions in and recommends Alphabet, Amazon and Nvidia. The Motley Fool has a disclosure policy.
Prediction: 2 Artificial Intelligence (AI) Stocks That Will Be Worth More Than Nvidia by 2028 was originally published by The Motley Fool
