Nvidia and Amazon: The Race to Reaching $4 Trillion and Beyond

Analysts predict a significant milestone on Wall Street, estimating the arrival of the first $4 trillion company by 2025.

Nvidia’s Dominance in the AI Sector

Nvidia (NASDAQ: NVDA) has experienced remarkable growth as companies invest heavily in artificial intelligence (AI). The burgeoning demand for enhanced data centers and sophisticated AI models has driven Nvidia’s market cap from $416 billion (when OpenAI launched ChatGPT) to a staggering $3.43 trillion currently.

Apple (NASDAQ: AAPL), with its market cap at $3.67 trillion, remains the only company outpacing Nvidia. Apple’s extensive iPhone user base has spurred a thriving services sector, which could be further boosted by AI integration into its operating systems in 2025.

Microsoft (NASDAQ: MSFT) has also established a strong AI presence. Its early investment in OpenAI has enriched Azure, its cloud platform, which is seeing rapid sales growth. As Microsoft continues to lead in enterprise software, its Copilot AI enhances productivity in workplaces. Currently, Microsoft has a market cap of $3.16 trillion.

Any of these major players could potentially take the lead as the first $4 trillion company in 2025, with one poised for an even higher achievement.

Image source: Getty Images.

Amazon’s Role as a Leading AI Investor

The excitement surrounding AI stems from its transformative potential across industries. One of the key players is Amazon (NASDAQ: AMZN), positioning itself as a candidate to become the first company to achieve a $5 trillion valuation.

Amazon is making substantial investments in AI, with management forecasting $75 billion in capital expenditures for 2024, primarily directed toward its cloud business, Amazon Web Services (AWS), and technology infrastructure, including logistics.

Despite high expenditures, Amazon generates impressive free cash flow, which reached $47.7 billion over the past 12 months, more than doubling year over year.

Why Amazon is Experiencing Rapid Growth

Amazon’s success can be attributed to its diversified operations. AWS has been a key growth factor, showing a 19% year-over-year sales increase in Q3 2024. Operating income for AWS grew by 49% in the same period, reflecting its expanding scale.

This growth in AWS is fueled by Amazon’s commitment to support advanced AI development through custom-built AI accelerators, presenting cost-effective options compared to those offered by Nvidia.

E-commerce remains the backbone of Amazon’s operations. It continues to capture a greater share of the online market, despite stiff competition. A critical element of this success is the Prime membership, which offers members various benefits, including free one-day shipping.

The growing number of Prime members enhances the appeal for more merchants to offer products, further attracting additional consumers. This virtuous cycle drives Amazon’s subscription services revenue, which is climbing at a double-digit pace.

Furthermore, Amazon is not complacent; it revamped its logistics operations in 2023 to focus on regional fulfillment across the U.S. By employing sophisticated algorithms, Amazon predicts demand effectively, ensuring stock availability and supporting a new logistics services venture.

Amazon’s dominant e-commerce position has also led to a significant digital advertising business, with ad sales reaching $53.6 billion over the past year. As it expands video advertising, particularly through its Prime members, Amazon stands ready to boost ad revenue significantly, aided by generative AI.

Aiming for a $5 Trillion Valuation

Amazon’s strategic focus is on long-term free cash flow generation, which has successfully risen to $47.7 billion from around $1 billion a decade ago.

Looking ahead, free cash flow is likely to increase significantly over the next five years. AWS, benefiting from the AI boom, is projected to enhance its operating income. Even with substantial spending on data centers and technology development, Amazon’s overall growth is expected to outpace these costs.

Moreover, this investment phase marks a record for Amazon at $75 billion for 2024, with potential increases in 2025. However, as investments stabilize, Amazon will eventually benefit from the groundwork laid across AWS, logistics, and e-commerce, a pattern seen repeatedly over its 30-year history.

Historically, Amazon’s free cash flow has led to a trading multiple of approximately 50. At this rate, Amazon may be valued at $5 trillion once it reaches $100 billion in free cash flow, a milestone that could be achieved sooner than anticipated given the promising growth trajectory.

Should You Invest in Amazon Today?

Before investing in Amazon, consider this:

The Motley Fool Stock Advisor team recently identified what they believe are the 10 best stocks for current investors, with Amazon not included among them. The selected stocks may yield substantial returns in coming years.

For context, when Nvidia made this list on April 15, 2005, if you had invested $1,000, it would be worth $832,928!*

Stock Advisor offers an easy-to-follow investment strategy, regular market updates, and two new stock recommendations monthly. The program has far outperformed the S&P 500 since its inception.

See the 10 stocks »

*Stock Advisor returns as of January 6, 2025

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Amazon, Apple, and Microsoft. The Motley Fool has positions in and recommends Amazon, Apple, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.