Did Amazon Just Call Nvidia “Checkmate”?

WhatsApp Group Join Now
Telegram Group Join Now
Instagram Group Join Now

Amazon just announced another strategic alliance as it builds its AI roadmap.

Much of the ongoing debate on artificial intelligence (AI) revolves around the “magnificent seven” stocks. Over the past 18 months, big tech has made a series of headline-grabbing, multibillion-dollar investments in AI initiatives.

The Magnificent Seven are among the leading businesses. Nvidia And Amazon (AMZN -1.61%). While Nvidia seems to have a strong pulse in all aspects of the AI ​​arena, I wouldn't overestimate the company's dominance.

Let's explore what's driving Nvidia's growth right now, and explore how Amazon could leapfrog the company in the long run.

Nvidia is the AI ​​chip leader, but…

Nvidia designs sophisticated semiconductor chips called graphics processing units (GPUs). GPUs have all kinds of applications, including training large language models, machine learning, autonomous driving, and more.

Beyond the tech sector, generative AI has also seen use cases in healthcare. Nvidia's GPUs are even being used by leading pharmaceutical companies. Novo Nordisk — Maker of Ozempic and Vigovi.

Unsurprisingly, Nvidia's impressive reach has helped the company capture a staggering 80% share of the AI ​​chip market.

While it may seem like Nvidia's lead is insurmountable, keep in mind that the AI ​​revolution is still in its early stages. While Amazon may be looking back, I'd argue the company is just pacing itself and preparing for a marathon-style run.

Image source: Getty Images.

…Some people in big tech are making their own moves.

The AI ​​startup scene is absolutely crowded. One of the most notable players is a machine learning company called Hugging Face, a unicorn that boasts Sales forceAmazon, Google, Nvidia, Intel, Advanced Micro Devices, QualcommAnd IBM as investors.

Do you see anything from this investor syndicate? Most of them are either chip companies or cloud computing specialists.

Conveniently, Amazon has both. In addition to Amazon Web Services (AWS), Amazon is developing a line of training and inference chips. Aptly named Trinium and Infinitia, these chips are sparking new sources of growth for AWS as cloud computing becomes ever more competitive.

Additionally, Hugging Face recently announced that it is partnering with AWS to deploy workloads on the latest version of Inferentia. I see this as a big win for Amazon, and it ultimately serves as a stepping stone for the company to exit its reliance on Nvidia products in the long term.

Another way Amazon is starting to build some momentum is with its $4 billion investment in another AI startup, Anthropic. Like Hugging Face, Anthropic is training its generative AI models on Amazon's Trainium and Inferentia chips and is also using AWS as its primary cloud provider.

If that wasn't enough to present Amazon as a serious contender in the AI ​​realm, consider the company's $11 billion investment to build data centers. While Nvidia also competes in the data center space, companies like Amazon and Oracle They have their own plans.

Is now a good time to invest in Amazon stock?

At the moment, Amazon stock trades for around $179 per share. That's very close to the company's all-time high of $189.

With that in mind, you might think Amazon stock is expensive. However, the chart below suggests something different.

AMZN PE ratio data via YCharts

Over the past 12 months, Amazon's share price has risen nearly 50 percent. In contrast, the company's trailing 12-month earnings per share (EPS) rose 181%.

Because the company's earnings are growing faster than its share price, Amazon's price-to-earnings (P/E) multiple is more than one. refusal year after year. This means that even though the share price is hitting all-time highs, Amazon is technically cheaper today than it was last year.

I think Amazon is underappreciated when it comes to AI. The company is investing aggressively and is already igniting some new momentum. Over time, I suspect the moves the company is making today will pay off and give Amazon a layer of flexibility over the competition.

To me, Amazon stock is cheap and represents a tremendous long-term opportunity in the AI ​​space. While Nvidia will likely remain the poster child for AI in the near term, I think Amazon is making some clever chess moves that will ultimately establish it as a superior long-term position.

John Mackey, former CEO of Whole Foods Market, is a member of the board of directors of The Motley Fool, an Amazon subsidiary. Adam Spotko has positions in Amazon, Novo Nordisk and Nvidia. The Motley Fool has positions in 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 calls on $45 Intel and short May 2024 calls on $47 Intel. The Motley Fool has a Disclosure Policy.

WhatsApp Group Join Now
Telegram Group Join Now
Instagram Group Join Now

Leave a Comment