A few years ago, it seemed improbable that Nvidia (NASDAQ: NVDA) could match the valuation of Amazon (NASDAQ: AMZN). At the start of 2020, Nvidia’s enterprise value was $136 billion, while Amazon was valued at $889 billion.
Fast forward to today and the tables have turned. Nvidia is now worth a staggering $1.46 trillion, inching ever closer to Amazon’s $1.60 trillion. Both tech behemoths have witnessed remarkable growth, but Nvidia’s rapid expansion in the artificial intelligence (AI) market has set its data center business ablaze.
Could this red-hot chipmaker overtake the e-commerce and cloud leader by 2025?
Image source: Getty Images.
Acceleration of Nvidia’s Growth
Nvidia faced a 7% revenue slump in fiscal 2020, attributed to a slowdown in the PC gaming market, cryptocurrency price decline, and COVID-19 supply chain disruptions. However, fiscal 2021 saw a remarkable 53% revenue surge, driven by the revival of the gaming and AI sectors.
Subsequently, fiscal 2022 witnessed a substantial 61% revenue spike. Although fiscal 2023 saw a revenue plateau, analysts’ conservative forecasts were blindsided by the explosive growth of the generative AI market. As a result, Nvidia is now expected to experience a 119% revenue surge to $59.1 billion in fiscal 2024.
If Nvidia achieves this, it would have grown its annual revenue at a compound annual growth rate (CAGR) of 52.5% from fiscal 2020 to fiscal 2024, surpassing Amazon’s anticipated 19.4% growth CAGR from 2019 to 2023.
Nvidia’s Continuous Growth Trajectory
The bulls are optimistic about Nvidia maintaining its upward trajectory, especially as it vends more data center chips (constituting 80% of its latest quarter revenue) and reignites its gaming business. Analysts foresee a 36% revenue CAGR from fiscal 2024 to fiscal 2026, propelled by the expanding AI market. They also anticipate a 38% CAGR for its earnings per share.
While these forecasts demand a degree of skepticism, the long-term outlook for the AI industry reinforces this bullish sentiment. The broader AI market is projected to grow at a CAGR of 19% from 2023 to 2032, with the generative AI niche set for an even faster CAGR of 47.5%.
Despite trading at 33 times next year’s earnings, Nvidia’s dominance in the burgeoning data center and gaming GPU markets could warrant this valuation. Nonetheless, potential challenges such as export restrictions on advanced AI chips to China, first-party AI chip development by major customers like Amazon, Microsoft, and OpenAI, and a likely supply glut loom on the horizon.
However, Nvidia may continue to outpace Amazon, expected to achieve a 12% revenue CAGR and a 34% earnings per share CAGR from 2023 to 2025. Moreover, at 43 times next year’s earnings, Amazon’s stock appears pricier than Nvidia’s.
Nvidia’s Quest for the Throne
Considering these factors, Nvidia stands poised to potentially surpass Amazon in value by the culmination of 2025. A mere 10% surge in its stock from current levels could suffice to elevate its enterprise value beyond that of Amazon’s. As the AI market expands, Nvidia could sustain its outperformance of the e-commerce and cloud titan over the next two years.
Should you invest $1,000 in Nvidia right now?
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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. Leo Sun has positions in Amazon. The Motley Fool has positions in and recommends Amazon, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.