The Magnificent Seven stocks, which include tech giants like Meta Platforms, Apple, Amazon, Alphabet, Microsoft, Nvidia, and Tesla, have become synonymous with leadership in artificial intelligence (AI). As generative AI continues to evolve, these companies stand at the forefront, each with unique propositions that cater to the growing demand for AI-driven solutions. While Nvidia has captured the limelight, particularly for its remarkable performance in the GPU market, there is an attractive alternative for long-term investment: Amazon.
The Case for Nvidia
Nvidia has established itself as the clear leader in the GPU space, commanding a staggering 92% market share in the data center segment. Its technological advancements and commitment to releasing new AI-centric processors have solidified its position as a preeminent player in AI development. The company’s partnerships, including significant deals with OpenAI, underscore its strong market presence and influence.
However, a closer examination reveals that competition is intensifying. Rivals like Advanced Micro Devices and Broadcom are making significant strides, securing valuable contracts that illustrate the diversity of solutions available in the AI arena. Consequently, while Nvidia is expected to maintain its leadership, the rapid and dynamic nature of technology markets suggests that its current stellar stock performance—having surged over 1,150% since early 2023—may not be sustainable in the long run.
Amazon: The Undisputed Contender
If I could select just one stock to invest in from the Magnificent Seven for the next decade, Amazon stands out as the compelling choice. The company’s multifaceted business model harnesses AI in three critical ways:
Logistics and Efficiency: Amazon has long utilized AI algorithms to optimize inventory management and delivery logistics. By continuously improving these systems, the company reduces costs and enhances operational efficiency. This backbone allows Amazon to maintain its competitive edge in e-commerce.
Digital Advertising: Amazon’s advertising business has experienced dramatic growth, fueled by AI-driven targeting that ensures ads reach the appropriate audiences. By enhancing this space with advanced AI capabilities, Amazon is positioned to capture an increasing share of the digital ad market.
- Amazon Web Services (AWS): As the industry leader in cloud services, AWS is vital for hosting AI applications and infrastructure. Amazon has integrated generative AI tools into its cloud offerings, benefiting its customers and ensuring continued engagement with this lucrative segment.
Financial Performance
Amazon’s impressive financial performance speaks volumes about its growth trajectory. In the second quarter, the company reported a 13% increase in sales year over year, reaching $167 billion, and a remarkable 33% boost in earnings per share (EPS) to $1.68. Notably, AWS grew nearly 18% to $31 billion, while advertising revenue surged by 23%, nearing $16 billion.
Moreover, CEO Andy Jassy has highlighted that more than 1,000 generative AI services and applications are either in development or already operational, indicating that the company is just scratching the surface of its potential in this domain. With ongoing innovation and expansion, Amazon appears ready to leverage the power of AI across all its business units.
Valuation and Future Prospects
Despite the company’s expansive growth and potential, Amazon’s stock remains relatively undervalued. Currently trading at 33 times its trailing earnings, this valuation is a premium only slightly above the broader S&P 500, which sits at a multiple of 31. This discrepancy signals an opportunity for investment, especially when considering Amazon’s historical performance, which has yielded a staggering 656% return over the past decade compared to 231% from the S&P 500.
Conclusion
While Nvidia undeniably remains a foundational player in the AI landscape, its market dynamics and rising competition lead to uncertainties surrounding its long-term growth potential. In contrast, Amazon’s diversified portfolio, dynamic business model, and ongoing investment in AI set the stage for sustained profitability and expansion. The company’s ability to integrate AI across its logistics, advertising, and cloud services uniquely positions it to thrive in the developing AI age. For anyone considering a long-term investment in the Magnificent Seven, Amazon emerges as a robust and promising option, with the potential to yield significant returns over the next decade.
This comprehensive analysis not only underscores the merits of Amazon over Nvidia but also emphasizes the changing tides in the tech landscape, where adaptability and innovation will remain crucial for success. As we move into an increasingly AI-driven world, Amazon’s strategic positioning and continuous evolution make it a stock worth considering for long-term investors.
