Nvidia vs. Amazon: A Look Ahead for 2025

The Dow Jones Industrial Average, known as the Dow, is one of the oldest and most respected stock market indexes. It consists of 30 top companies that are leaders in their industries. These blue chip stocks represent various sectors of the economy. Over the past five years, the Dow has seen significant changes.

This year, two notable changes occurred with Amazon (AMZN) replacing Walgreens Boots Alliance in February, and Nvidia (NVDA) taking the place of Intel in November.

Since their addition to the Dow, Amazon and Nvidia have demonstrated impressive performance, outpacing both the S&P 500 and the Dow indexes year to date. While investors often look back to assess a company's performance, they mostly want to know about its future potential.

In this article, we will explore why Nvidia may be a more attractive investment than Amazon for 2025 and what investors should consider when purchasing growth stocks at peak prices.

Collaborating Success

It is important to note that Amazon's cloud computing division, Amazon Web Services (AWS), significantly relies on Nvidia's technology. This establishes a scenario where both companies could excel together, benefiting from each other's growth. Any setback in AWS might, however, negatively impact Nvidia.

On December 3, Nvidia announced its new technology, including the Blackwell architecture designed for generative artificial intelligence (AI), which is now accessible through AWS. This collaboration allows businesses to develop AI models with support from Nvidia specialists, highlighting the strong synergy between the two firms.

Nvidia holds the top position in providing chips for hyperscalers, while AWS is a leading hyperscaler, matching the combined market share of Microsoft Cloud and Google Cloud. According to recent data, AWS commands a 31% share of the cloud market compared to 20% for Microsoft and 13% for Google.

Despite AWS’s prominence, Nvidia maintains a stronger position in the chip sector for data centers.

A Superior Business Model

Amazon is known for its adaptability, having ventured into various markets and weathered multiple economic challenges. With its network effects, dominant cloud services, and a growing e-commerce platform, there are valid reasons to consider investing in Amazon.

For instance, AWS accounted for 62% of Amazon's total operating income in the first nine months of 2024. AWS revenue rose by over $12 billion compared to the same period last year, with only a modest increase in operating expenses. However, without AWS, Amazon's overall growth would be much slower.

While AWS has enabled Amazon to transcend its initial e-commerce roots, Nvidia's transformation into a powerhouse in data centers has been more profound.

In its most recent quarter, Nvidia reported revenues totaling $30.77 billion, with $27.64 billion coming from its computing segment. This division achieved an impressive operating margin of 71.8%. In comparison, Amazon's entire operation yielded $17.41 billion in operating income for that same quarter, showcasing Nvidia's efficiency.

Over the last five years, Nvidia has shifted from being primarily a graphics chip maker to dominating the data center market. Today, more than 85% of Nvidia's revenue stems from its data center operations, highlighting its strategic pivot. AWS's clientele is among the most financially stable in the industry—making them ideal customers for Nvidia, which seeks long-term partnerships.

In contrast, while Amazon operates across several sectors, Nvidia offers a more focused investment opportunity tied directly to the burgeoning data center growth.

Nvidia's Valuation is Justified

Nvidia faces significant risks, such as a decline in AI capital spending or increased competition threatening its margins, yet it has thus far navigated these challenges successfully. The company has consistently delivered strong earnings, and its financial performance aligns with stock price growth.

While Nvidia's price-to-earnings (P/E) ratio is higher than Amazon's, its continuous earnings growth could narrow this gap, making Nvidia a more attractive option moving forward.

Consider a Long-term Perspective

Both Nvidia and Amazon are poised to gain from rising AI investments. However, market fluctuations or a slowdown in spending could prompt quick sell-offs for either stock. When investing in high-growth stocks at historical peaks, it's crucial to recognize that factors leading to those highs could also contribute to declines.

Investors focusing on Nvidia should keep an eye on its ongoing technological innovations and its ability to enhance profitability. Nvidia is currently outpacing its competitors in innovation, allowing it to maintain premium pricing for its products. Its strong customer base is well-positioned to absorb these costs, further solidifying Nvidia’s market position.

In conclusion, Nvidia presents a more straightforward and robust business model compared to Amazon, boasting superior growth and market metrics, making it a strong investment choice at this time.

Nvidia, Amazon, Dow