A lot of discussion about artificial intelligence (AI) is about the “Magnificent Seven” stock. Over the past 18 months, big tech has made multiple billion-dollar investments in AI initiatives.
Among the main companies in the Magnificent Seven are Nvidia and Amazon (NASDAQ: AMZN). While Nvidia seems to have a strong pulse in all aspects of the AI ​​arena, I would never underestimate the company’s dominance.
Let’s take a look at what’s driving Nvidia’s growth today, and explore how Amazon can leapfrog the company in the long run.
Nvidia is the leader in AI chips, but…
Nvidia designs advanced semiconductor chips called graphics processing units (GPUs). GPUs have a variety of applications ranging from training large language models, machine learning, autonomous driving, and more.
Beyond the technology sector, generative AI also has use cases in healthcare. Nvidia GPUs are even used by leading pharmaceutical companies such as Novo Nordisk — makers of Ozempic and Wegovy.
Unsurprisingly, Nvidia’s prolific reach has helped the company amass 80% of the AI ​​chip market share.
Even if it seems like Nvidia’s leadership is insurmountable, remember that the AI ​​revolution is still in its early stages. Although Amazon may be looking behind it, I would argue that the company is simply running and preparing for a marathon-style race.
… some in big tech are making their own moves
The AI ​​startup scene is really crowded. One notable player is a machine learning company called Hugging Face, a proud unicorn SalesforceAmazon, Google, Nvidia, Intel, Advanced Micro Devices, Qualcommand IBM as an investor.
Have you seen anything from that investor syndicate? Many are chip companies or cloud computing specialists.
Conveniently, Amazon does both. In addition to Amazon Web Services (AWS), Amazon is developing a line of training and inference chips. Named Trainium and Inferentia, the chips lead to new sources of growth for AWS as cloud computing becomes competitive.
In addition, Hugging Face recently announced that it is partnering with AWS to distribute workloads on the latest version of Inferentia. I see this as a huge win for Amazon, and ultimately a stepping stone for the company to migrate away from reliance on Nvidia products in the long term.
Another way Amazon is starting to build momentum is from its $4 billion investment in another AI startup, Anthropic. Like Hugging Face, Anthropic trains its generative AI models on Amazon’s Trainium and Inferentia chips and also uses AWS as its primary cloud provider.
If this isn’t enough to portray Amazon as a serious contender in the AI ​​realm, consider the $11 billion investment the company is planning to build data centers. While Nvidia also competes in the data center space, companies such as Amazon and Oracle have their own plans.
Is now a good time to invest in Amazon stock?
Currently, Amazon stock trades at about $179 per share. This is pretty close to the company’s top at $189.
With that in mind, you might think Amazon stock is expensive. However, the chart below shows something different.
Over the past 12 months, Amazon’s stock price has risen roughly 50%. In contrast, the company’s trailing-12-month earnings per share (EPS) has increased by 181%.
Because the company’s earnings growth is faster than its stock price, Amazon’s price-to-earnings (P/E) is actually refuse year after year. This means that even though the stock price is touching an all-time high, Amazon is technically cheaper today than it was last year.
I think Amazon is underappreciated when it comes to AI. The company is investing an aggressive amount and has created a new momentum. Over time, I suspect that the moves the company is making now will pay off in spades and provide Amazon with a layer of flexibility over the competition.
To me, Amazon stock is undervalued and represents an attractive long-term opportunity in the AI ​​space. While Nvidia will probably remain the posterchild of AI in the near term, I think Amazon is making some smart chess moves that will eventually set it up as a long-term leader.
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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Adam Spatacco has positions in Amazon, Novo Nordisk, and Nvidia. The Motley Fool has positions and recommends Advanced Micro Devices, Amazon, Nvidia, Oracle, Qualcomm, and Salesforce. The Motley Fool recommends Intel, International Business Machines, and Novo Nordisk and recommends the following options: long January 2025 $45 calls on Intel and short May 2024 $47 calls on Intel. The Motley Fool has a disclosure policy.
Did Amazon Just Say “Checkmate” to Nvidia? this was originally published by The Motley Fool
