Choosing the Best Long-Term Stock: Amazon Over Nvidia

While Nvidia has gained significant attention and become a top-performing stock among the "Magnificent Seven" tech stocks over the past few years, I believe Amazon is the better choice for long-term investment.

The unofficial beginning of the artificial intelligence (AI) revolution can be traced to November 30, 2022, when OpenAI launched ChatGPT to the public.

Since the introduction of ChatGPT, major stock indices like the S&P 500 and the Nasdaq Composite have reached multiple record highs, significantly driven by the rise of megacap technology companies. The "Magnificent Seven" stocks have been among the biggest beneficiaries of this trend.

Leading the pack, Nvidia and Meta Platforms have excelled with astonishing gains of 601% and 409%, respectively, as of mid-March. Following them is the e-commerce giant Amazon, whose stock price has surged by 102% since ChatGPT's release. Despite this impressive return, I foresee even greater potential for Amazon’s growth.

Amazon's Significant Investments in AI

While Nvidia, Microsoft, and Tesla dominate the spotlight in discussions about AI, Amazon has been quietly making significant strides in this area too.

Amazon has invested around $8 billion into Anthropic, a close competitor to OpenAI. This partnership positions Anthropic to utilize Amazon's cloud infrastructure for training its generative AI models, integrating Amazon's specialized chips, Trainium and Inferentia, which could enhance the company's competitive edge against Nvidia.

Since collaborating with Anthropic in September 2023, Amazon has seen substantial growth in its cloud services, known as Amazon Web Services (AWS). In the fourth quarter of 2023, AWS revenues grew 13% year-over-year, with operating income climbing by 39%. By the end of the fourth quarter of 2024, AWS reported a 19% annual growth and an impressive 48% rise in operating income.

Amazon's ambitious plans do not stop there. The company is set to invest over $30 billion into developing data centers across several states in the U.S. and in Mexico, signaling its commitment to expand its cloud computing capabilities.

This cycle of investment shows how Amazon's integration of AI into AWS fosters continuous cash flow growth, which is then reinvested into driving further advancements in AI tech.

Additionally, Amazon is pouring resources into AI-driven robotics, particularly in automating its warehouse operations. This strategy promises to greatly enhance efficiency in Amazon's e-commerce model, complementing increased profit margins already observed in AWS.

Amazon's Favorable Stock Valuation

While Nvidia has been a star performer in the AI sector, I question whether its stock can continue to exhibit exponential growth over the next decade. As competition in the chip market heats up, Nvidia's growth might start to slow.

In contrast, I view Amazon's AI initiatives as still in their infancy. The company is executing numerous ambitious projects aimed at boosting both its revenue and profit margins across key sectors like e-commerce and AWS.

Currently, Amazon's stock is trading at 31 times forward earnings estimates. This forward P/E ratio is considerably lower than its five-year average and is at one of its lowest points in over a year.

Given Amazon's growth momentum and the substantial benefits likely to emerge as AI becomes integral to its ecosystem, I believe this is an excellent opportunity for investment. Investors seeking a blend of growth potential and steady profitability should seriously consider acquiring Amazon stock now and hold onto it for the long haul.

John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of the board of directors at The Motley Fool. Randi Zuckerberg, former director of market development and spokeswoman for Facebook, and sister to Meta Platforms CEO Mark Zuckerberg, is also a board member. Adam Spatacco has holdings in Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. The Motley Fool holds positions in and proposes investments in Amazon, Meta Platforms, Microsoft, Nvidia, and Tesla. Please consult the investment disclosure policy for more information.

Investment, AI, Stock