Prediction: This AI Stock Will Be Worth More Than Nvidia 5 Years From Now

Globe and Mail

4 days ago

Every investor wants to find the next Nvidia (NASDAQ: NVDA). Since 1995, Nvidia shares have risen by more than 135,000%. A few dollars could have turned into nearly $1 million over that time frame. While the gains won't be as large, there's one stock in particular right now that should be on the watch list of every investor. There's a good chance that this company, not Nvidia, will be the biggest AI stock of 2030.
AWS might be the next Nvidia
While Nvidia has taken the AI market by storm, there's a chance that Amazon 's (NASDAQ: AMZN) AWS division will be the true winner over the next five years.
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There's an old saying in the investing world: When a gold rush occurs, sell shovels. The takeaway is clear. Don't just rush toward the shiny, gleaming object that is attracting hoards of attention. Instead, supply that deluge of demand with the tools they need. That way, you'll make money regardless of whether the gold rush pans out.
Applying this framework to the current AI craze can help identify profitable investing opportunities. Right now, there are scores of AI companies seeking to create the next big thing -- the AI market globally is expected to rise from under $200 billion in 2023 to nearly $5 billion in 2033. There's big money to be made, and start-ups around the world are racing to capitalize.
What are the "shovels" in this scenario? There are two candidates. The first is GPUs, or graphics processing units. Estimates put the Nvidia's market share of data center GPUs near 90%. GPUs are what make training and running complex AI models possible. It's not cost effective for every AI developer to own their own infrastructure. Instead, they essentially rent this compute power from data center companies like Amazon's AWS division. Nvidia's products have a clear performance edge on the competition, and nearly every AI business wants to use these chips. So regardless of whether any specific AI application makes it big, Nvidia will still profit by supplying the industry with in-demand GPUs.
But Nvidia's performance superiority won't last forever. Eventually, competition will emerge, eating into Nvidia's market share and impressive gross profit margins. That means that AI companies will have more chip options to choose from at a lower price. But it won't be AI companies that buy these new chips -- it will be cloud providers like AWS. Nvidia's long-term competitive pressures would then turn into a benefit for AWS, which has access to more chip options at a lower price to serve its customers.
In the cloud infrastructure world, scale matters. With a 30% global market share -- nearly as much as the next two competitors combined -- AWS has the ability to sit at the center of the AI revolution perhaps even longer than Nvidia.
One problem with buying Amazon stock right now
Of course, Amazon is much more than just AWS. Its e-commerce division still contributes a plurality of its revenue, with more than 80% of sales tied either directly or indirectly to this segment. AWS, meanwhile, still contributes less than 20% of sales.
Importantly, however, AWS is growing faster than the e-commerce division. AWS also contributes more than half of the company's operating income right now. So yes, you'll need to feel comfortable also buying into the rest of Amazon's business lines. But over the next five to 10 years, AWS should become the tail that wags the dog. Some analysts believe that the AWS division alone could be worth several trillion dollars by 2030, potentially warranting a spinoff. That would make the combined company more valuable than Nvidia's current valuation.
Of course, Nvidia will have plenty of chances to grow over the next five years as well. But AWS is the secret driver to Amazon's long-term success. And depending on what happens with GPU competition long term, AWS could catapult Amazon's valuation above Nvidia's by 2030. You'll just need to be patient, understanding that most of Amazon's sales right now stem from a completely different business line.
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