As the 21st century unfolds, there has been a tectonic shift in market leadership. Just 20 years ago, General Electric and ExxonMobil dominated the market capitalization charts, with values of $319 billion and $283 billion, respectively. Fast forward to today, and tech behemoths Apple and Microsoft stand at the summit, boasting market caps of $3 trillion each (as of Thursday morning). Seven out of the top 10 companies are now industry-leading technology firms, demonstrating the unmistakable dominance of tech in today’s market landscape.
The emergence of generative artificial intelligence (AI) has been a significant driver of stock market gains over the past year. This innovation holds the promise of widespread productivity improvements and has the potential to propel the next cohort of “three trillionaires.” Amid this backdrop, there are two AI-focused stocks that stand out as potential members of this exclusive $3 trillion club within the next seven years, if not sooner.
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Nvidia’s Path to the $3 Trillion Club
Nvidia (NASDAQ: NVDA) currently commands a market cap of $1.54 trillion and could potentially ascend to the $3 trillion mark, albeit subject to debate about timing. To reach this milestone, the stock would need to appreciate by roughly 95% from its Wednesday closing price, translating to approximately 10% annual gains between now and 2030 — an achievable feat.
Undeniably, Nvidia faces challenges along the way. Among the major headwinds is the recent meteoric rise of its stock, having surged by 239% in the last year alone. However, its crucial role in the AI landscape cannot be overstated. The company has delivered triple-digit year-over-year revenue and profit growth in each of the past two quarters, with management projecting a continuation of this trajectory.
Nvidia operates across multiple markets, each offering opportunities for growth. Although the company has long been the dominant force in the discrete desktop graphics processing unit (GPU) space, with over 80% market share, a recent industrywide slump, driven by the pandemic, led to a downtick in Nvidia’s fortunes. With GPU shipments now on the rebound after nearly three years of consecutive declines, Nvidia is poised for an upward trajectory.
However, it is the fusion of AI and cloud computing that holds the promise of propelling Nvidia to new heights. Renowned for its pre-eminence in AI and its role in facilitating data transfer for cloud computing, Nvidia lays claim to an estimated 95% share of the GPU data center market — the bedrock of cloud computing — as confirmed by CFRA Research analyst Angelo Zino. Furthermore, Nvidia dominates in the realm of processors used for machine learning, with an estimated market share of 95% according to New Street Research. These credentials position Nvidia as the go-to choice for accelerating generative AI.
The stakes are undeniably high, with analysts at Morgan Stanley estimating the generative AI market to be a $6 trillion opportunity, while Goldman Sachs pegs it at $7 trillion. As the leading provider of AI processors, Nvidia is in an enviable position. The ongoing scramble by data centers and cloud infrastructure providers to scale up their systems to meet the computational demands of generative AI is expected to persist, providing Nvidia with the impetus it needs to attain the coveted $3 trillion milestone.
Amazon’s Trajectory to the $3 Trillion Club
Amazon (NASDAQ: AMZN) currently boasts a market cap of $1.63 trillion, and many anticipate its inevitable ascent to the $3 trillion club. To reach this goal, the stock need only appreciate by approximately 85% from its Wednesday closing price, equating to a modest 10% annual growth between now and 2030 — a goal well within Amazon’s grasp.
There are numerous drivers that could underpin the company’s future growth. Heightened levels of inflation, not observed in decades, have forced individuals to make tough financial choices, impacting consumer spending and affecting Amazon’s leading position in online retail. Encouragingly, signs of economic recovery are emerging, with Amazon reporting an 11% uptick in its e-commerce sales in the first three quarters of 2023. Further economic improvements could provide a substantial boost to the company.
Global e-commerce sales are projected to surge by over 9% in 2024, surpassing $6.3 trillion, and as the premier digital retailer globally, Amazon stands to benefit from this growth wave.
Another area of growth for Amazon lies in the digital transformation, spearheaded by cloud computing. Amazon Web Services (AWS) reigns as the global leader in cloud infrastructure services, commanding a 31% market share according to data from market analytics firm Canalys. While business spending on cloud services waned in the face of economic turmoil, it is now resurging, with a 16% increase in cloud service expenditure in the third quarter of 2023, likely to accelerate further with improving economic conditions. As the forerunner in the industry, Amazon is primed to capitalize on this trend.
The most significant growth driver for Amazon, however, lies in generative AI. This technology has proven highly effective in summarizing vast amounts of data, identifying patterns, and making swift decisions. As a result, it is anticipated to play a pivotal role in driving Amazon’s future growth.
As these stocks vie to join the exclusive $3 trillion club, investors are closely watching their trajectories, hoping to ride the wave of this lofty market achievement.
Amazon’s Generative AI Services Set to Propel Cloud Revenue
The Rise of Generative AI Services
Artificial Intelligence (AI) has upended the business landscape, in fields as disparate as automating emails and drafting responses, searching the internet and company storehouses for data, and even writing and debugging computer code. Companies are in a frenzied race to integrate these AI models into their operations, with new use cases being discovered every day. The demand for these AI models is insatiable, but the exorbitant cost to create them from scratch and the colossal quantities of data required for training foundational generative AI models have been major stumbling blocks.
Amazon’s Role in Providing Generative AI Services
Cloud providers, such as Amazon Web Services (AWS), are the best candidates to furnish generative AI services to users. Amazon already boasts an extensive collection of these models and has launched a growing suite of tools to assist its cloud customers in taking advantage of AI. With the recovery of the e-commerce market, a resurgence in cloud spending, and the widespread adoption of AI, Amazon is positioned to gain the momentum it needs to join the $3 trillion club.
Nvidia Stock Analysis
Before considering an investment in Nvidia, it’s important to note that the Motley Fool Stock Advisor has identified what they believe to be the 10 best stocks for investors to purchase, with Nvidia not making the cut. The selected stocks have the potential to generate significant returns in the years to come, eclipsing the inclusion of Nvidia. The Stock Advisor provides investors with a clear path to success, offering guidance on portfolio construction, regular updates from analysts, and two new stock picks monthly. Notably, the Stock Advisor‘s returns have surpassed those of the S&P 500 since 2002*.
*Stock Advisor returns as of January 22, 2024
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. The Motley Fool has positions in and recommends Amazon, Apple, Goldman Sachs Group, Microsoft, and Nvidia.