The Impact of AI on Amazon’s Growth Potential Compared to Nvidia

Artificial intelligence (AI) has significantly impacted technology businesses in recent years. Key players like Nvidia showcase how the AI boom is reshaping market valuations.

Take a look at semiconductor giant Nvidia (NASDAQ: NVDA). Two years ago, its market capitalization was $700 billion. Today, it has soared to over $2.7 trillion, making it the third most valuable company globally, after Microsoft and Apple.

Meanwhile, e-commerce titan Amazon (NASDAQ: AMZN) has seen its market value increase by nearly $1 trillion during the same period. Although Amazon’s valuation currently lags behind Nvidia’s, forecasts suggest it could outpace the semiconductor giant within the next decade.

Amazon’s Transformative Journey with AI

Amazon categorizes its revenue into six key segments: online stores (e-commerce), physical stores, third-party seller services, advertising, subscriptions, and Amazon Web Services (AWS). Initially rooted in retail, Amazon has diversified into higher-margin avenues such as advertising, Prime subscriptions, and AWS.

AI could significantly influence all operational segments. However, its effects on AWS and retail particularly stand out. In retail, Amazon is heavily investing in AI robotics, automating fulfillment centers to enhance efficiency in packaging and shipping. This should lead to lower labor costs and increased profitability over time.

On the AWS front, Amazon has experienced a renaissance following an $8 billion investment in AI startup Anthropic, in which it partnered in September 2023. By the end of Q3 2023, AWS achieved a $92 billion annual revenue run rate, with an impressive operating income margin of 30%. By Q1 2025, that revenue run rate had escalated to over $117 billion, while margins nearly reached 39%.

This combination of rising revenue and expanding profit margins is compelling. Additionally, Amazon is enhancing its AWS platform through custom chip development and major investments in data center infrastructure.

Image Source: Getty Images.

Nvidia Faces Potential Growth Challenges

As Amazon develops its own AI chipsets, it aligns with other tech giants like Microsoft, Meta Platforms, and Alphabet, which are pursuing similar capabilities. While this shift may not create an immediate crisis for Nvidia, it may dilute its long-term competitive edge.

Currently, major tech firms collaborate closely with Nvidia, but as alternatives become available, reliance on Nvidia could decrease. Companies like Advanced Micro Devices have already gained traction with clients such as Oracle, Meta, and Microsoft, which could signal slower growth for Nvidia in the future.

Amazon’s Valuation Shows Potential for Appreciation

If increasing competition in AI chipsets begins to hinder Nvidia’s growth, it may lead to compression in its valuation multiples. Conversely, Amazon seems poised to capitalize on new growth opportunities, especially in AWS and retail.

Amazon’s current valuation indicates that investors are not fully acknowledging its efficiency gains or long-term potential. Given the company’s impressive growth in operating profits relative to its market cap, Amazon appears undervalued.

If Amazon maintains its trajectory, it stands to accelerate revenues and generate substantial cash flow. This makes it likely that its valuation will expand notably over the coming years, potentially positioning it to surpass Nvidia by 2030.

A Final Note on Investing Opportunities

For those who feel they’ve missed opportunities in successful stocks, now may be the time to reevaluate. Industry analysts periodically identify stocks they believe are on the verge of significant growth. It’s essential to act before the market reacts.

Nvidia: A $1,000 investment back in 2009 would be $295,164 today!*

Apple: A $1,000 investment when we doubled down in 2008 would now stand at $37,708!*

Netflix: If you invested $1,000 back in 2004, you’d have $611,589!*

Right now, analysts are sharing insights on three promising companies, available to subscribers. Taking action sooner could yield outsized returns in the future.

*Investment returns as of May 5, 2025.

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