Apple had a market value of $3.7 trillion as of Dec. 31, making it the most valuable U.S. company, a title it has held for most of the past decade. But Apple has yet to demonstrate its ability to monetize artificial intelligence, at least not to the same degree as other big tech companies.
Unsurprisingly, Wall Street expects Apple shares to trade flat over the next year. In fact, the 12-month median target of $250 per share implies a downside from the current stock price of $251. This also gives Amazon (AMZN 1.80%) And Nvidia (NVDA 4.45%) a chance to surpass Apple’s current valuation.
- Amazon is currently worth $2.3 trillion. The stock price would need to reach $362 per share (up about 65% as of December 31) for its market value to reach $3.8 trillion.
- Nvidia is currently worth $3.3 trillion. The stock price would need to reach $156 per share (up about 16% as of December 31) for its market value to reach $3.8 trillion.
Certainly, the first prediction is much more aggressive than the second, and the least likely to be accurate. But I think both outcomes are plausible this year. Here’s why.
1. Amazon
Amazon reported impressive third-quarter financial results. Revenue rose 11% to $159 billion, driven by particularly strong sales growth in the advertising and cloud computing segments. Operating margin increased more than 3 percentage points as the company made execution more efficient, and GAAP earnings increased 52% to $1.43 per diluted share.
Looking ahead, the investment thesis is threefold: Amazon runs the largest e-commerce marketplace in North America and Western Europe, it is the third largest ad tech company in the world, and Amazon Web Services is the largest public cloud. This last point is particularly important because it means Amazon is ideally positioned to benefit from the demand for artificial intelligence (AI) that is attracting more businesses to the cloud.
Wall Street estimates that Amazon’s profits will increase 26% over the next 12 months. This consensus makes the current valuation of 47 times earnings reasonable. These numbers yield a price-to-earnings-to-growth (PEG) ratio of 1.9, which is a significant reduction from Apple’s PEG ratio of 3.6. If Amazon beats earnings estimates even by a small margin, its valuation multiple could increase to the point where its market value reaches $3.8 trillion.
To be sure, Amazon shares are unlikely to rise 65% this year. Still, patient investors should consider buying a small position today. In fact, only four companies in the S&P The 500 Index has a higher percentage of Buy ratings than Amazon, according to FactSet Search.
2.Nvidia
Semiconductor company Nvidia reported strong financial results in the third quarter of fiscal 2025, which ended October 2024. Revenue increased 94% to $35 billion on the back of a Particularly strong sales growth in the data center segment, driven by demand for AI hardware and software. Meanwhile, non-GAAP net income increased 103% to $0.81 per diluted share.
Looking ahead, the bullish scenario is simple: Nvidia graphics processing units (GPUs) are the gold standard for accelerating compute-intensive workloads in data centers, like artificial intelligence. Indeed, Forrester Search analysts recently wrote: “Nvidia is setting the pace in AI infrastructure. Without Nvidia’s GPU, modern AI would not be possible. »
The company has a significant catalyst on the horizon with the launch of its Blackwell GPU, which can perform AI training tasks up to four times faster and AI inference tasks up to 30 times faster. faster than the previous Hopper architecture. Blackwell’s production increased in the current quarter, so Nvidia is expected to generate substantial revenue from its next-generation chip in the coming year.
Wall Street estimates that Nvidia’s profits will increase by 50% over the next 12 months. This consensus estimate makes the current valuation of 51 times earnings look downright cheap. Nvidia stock could easily return 16% if the company reports earnings in line with expectations in the coming quarters, and shares could advance even more if they beat estimates.
Either way, patient investors should feel comfortable buying a few stocks today. In the previous section, I wrote that only four companies in the S&P 500 have a higher percentage of Buy ratings than Amazon. Nvidia is in a similar situation. According to FactSet Research, only six companies in the S&P 500 have a higher percentage of buy ratings than Nvidia.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennevine holds positions at Amazon and Nvidia. The Motley Fool holds positions and recommends Amazon, Apple, FactSet Research Systems and Nvidia. The Motley Fool has a disclosure policy.
