Prediction: This Hypergrowth AI Stock Will Finish 2025 With the Largest Market Cap in the World (Hint: It's Not Nvidia)

In 2024, Nvidia briefly claimed the title of the world’s largest company based on market capitalization. The surge in demand for artificial intelligence (AI) has propelled this computer chip manufacturer into a phase of remarkable profit generation. However, with a price-to-earnings ratio exceeding 50 and profit margins reaching unprecedented levels, it may not be prudent to invest in Nvidia for 2025. There are potentially more affordable stocks that could benefit from the AI boom.

This brings us to Amazon (AMZN -0.22%). Although its stock has only slightly outperformed the S&P 500 over the last five years, most gains were realized during the early phase of the COVID-19 pandemic. There are compelling reasons to believe that Amazon can boost its growth rate and end 2025 as the company with the largest market cap globally.

Investing Heavily in AI Infrastructure

Amazon Web Services (AWS) serves as Amazon's primary profit engine, leading the global cloud computing infrastructure market. AWS is also one of the largest consumers of Nvidia chips, as it powers the data centers that support the rapidly expanding AI technologies. Over the past few quarters, AWS has experienced accelerating revenue growth, starting at 12% year-over-year in Q2 2023 and reaching 19% growth by Q3 2024. The revenue run rate for AWS now exceeds $100 billion annually.

Even more noteworthy are AWS's profit margins. Its operating margin over the trailing twelve months stood at 35%, translating to an operating income of $36 billion from this segment. Given the increasing demand for AI in 2025, it is reasonable to expect AWS to sustain its revenue growth rate. If we estimate a 25% revenue growth for AWS in 2025, it could generate around $130 billion in revenue, resulting in approximately $45.5 billion in operating income based on a 35% profit margin.

Amazon's growth potential in the longer term is substantial. Management frequently emphasizes that a significant portion of IT spending remains on-premise and is in the process of transitioning to cloud-based solutions. As this shift continues, AWS is poised to capture an increasing share of the IT budget, further driving revenue growth.

Consider Amazon's Retail and Advertising Strengths

Additionally, we cannot overlook Amazon's significant retail presence. Its e-commerce, subscription services, and advertising businesses generated $377 billion in revenue in North America alone, with another $140 billion coming from international markets. Although these international segments may not contribute significantly to profits in 2025 due to ongoing investments in regions like India, North American profits are expected to rise.

North American retail profit margins have improved from near 0% in 2023 to 6% over the past year. High-margin segments like advertising have been growing at an impressive 19% year-over-year. Amazon has ample opportunity to increase its North American retail profit margins in 2025. If margins reach 10%, a revenue target of over $400 billion would yield over $40 billion in operating income from North America, excluding contributions from international retail growth in regions like Europe and India.

Why Amazon Will Dominate by 2025

If Amazon can meet these financial targets, its total operating earnings might reach around $100 billion, a significant increase from the $60 billion reported over the last 12 months. With AWS continuing on its growth trajectory and the potential for further margin expansion in North American retail, Amazon's profits should maintain a rapid pace in the coming years, likely prompting investors to assign a higher earnings multiple, which has been typical in the past.

If Amazon's stock trades at approximately 40 times its 2025 operating income, the market cap could approach $4 trillion by year-end. This would position Amazon ahead of current market leaders like Nvidia, Apple, and Microsoft. Barring any groundbreaking financial performance from these companies in the near term, Amazon has a solid chance of regaining its status as the world's largest company based on market capitalization.

Amazon, Nvidia, AI