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Megacap technology stocks have been some of the biggest and longest-standing beneficiaries of the artificial intelligence (AI) revolution. While growth stocks in the tech sector have experienced at least some form of action since AI emerged as a megatrend, these gains have been fleeting for most companies -- leading to prolonged periods of outsize volatility.
But for big tech, the gains have been quite steady over the last couple of years. The company that has enjoyed the most upside so far is semiconductor powerhouse Nvidia, which has seen its market value rise by trillions -- making it one of the most valuable companies in the world.
While owning Nvidia stock has helped some investors realize unprecedented gains and wealth, I see a different member of the "Magnificent Seven" as the better long-term opportunity. Let's explore the dynamics between Nvidia and Amazon (NASDAQ: AMZN) and assess why the e-commerce and cloud computing darling could be the more valuable company by next decade.
Over the last two decades Amazon has extended far beyond its e-commerce marketplace. Today, the company operates across cloud computing infrastructure, advertising, streaming and entertainment, logistics, grocery delivery, subscription services, and more. By diversifying its ecosystem, Amazon has acquired a lucrative combination of retail and corporate consumers.
For a couple of years now, Amazon has quietly been pouring billions into a number of AI-related initiatives as it begins to build the next phase of its business. Some of the higher-priority moves the company has made includes investing $8 billion into a start-up called Anthropic, which has become an integral component of the company's cloud computing platform, Amazon Web Services (AWS).
Amazon has also been focusing on building AI data centers, its own line of custom silicon chipsets, and doubling down on robotics automation processes for its fulfillment centers.
If you look at the revenue and profit trends above, you might be questioning why Amazon is making these investments in the first place. Well, just check out the disparity between Nvidia's growth and Amazon's. It's clear that the slopes of Nvidia's revenue and profit lines are far steeper than Amazon's.
With that said, I'd caution investors against dismissing Amazon's potential. Revenue and operating profits in AWS have been accelerating considerably since the Anthropic partnership commenced a couple of years ago. In addition, Nvidia sells some of the most important pieces of hardware and software needed to develop AI. In other words, Nvidia has been enjoying faster gains compared to its peers because companies need their products. Amazon, by contrast, has spent the last two years building new products and services that have yet to fully scale.