Nvidia and Amazon are expected to be key indicators of AI investment in 2024, according to recent reports. The surge in artificial intelligence (AI) technology has been a driving force behind the market’s remarkable gains in 2023, overshadowing concerns about inflation, interest rates, and the possibility of a recession. Nvidia, with its high-performance graphic processing units (GPUs) and data-accelerating software, has seen a significant rise in quarterly data-center sales, which have increased by 450% since the fourth quarter of fiscal 2022.
The success of Nvidia’s data-center revenue and operating income is a testament to the strong demand for AI products. Data centers are crucial for the functioning of AI software, and when Nvidia’s data-center revenue is soaring, it indicates that companies are investing heavily in AI. In fiscal Q3 2024 alone, Nvidia generated $14.5 billion in data-center revenue, almost matching the $15 billion generated in the entire fiscal 2023.
Moreover, Nvidia’s operating income has also experienced a substantial increase, reaching $10.4 billion last quarter, with a remarkable operating margin of 57%. This demonstrates that the demand for Nvidia’s products is so high that the company can dictate its prices in the market. These positive metrics serve as a strong indication that companies are willing to invest significant amounts in AI.
Despite the impressive results, Nvidia’s stock valuation remains high, trading near its all-time high with a forward price-to-earnings (P/E) ratio of 40. However, if the company continues its current trajectory, the valuation could adjust rapidly.
Similarly, Amazon’s stock had a remarkable 2023, posting gains of approximately 80%. However, there were concerns about the slowdown in growth for Amazon Web Services (AWS), the company’s cloud computing division. AWS revenue growth peaked in 2021 at 37% but declined to just 10% over the trailing 12 months as of Q3.
One reason for this slowdown is that many companies reduced their data usage budgets in preparation for a potential recession. As a result, Amazon had to work with customers to lower their costs, which impacted sales in 2023. Nevertheless, this strategy has built customer loyalty and positions AWS for potential growth as companies increase their spending on data due to the development of AI and machine learning (ML) software.
Despite Amazon’s impressive performance in 2023, its stock remains historically undervalued based on price-to-sales (P/S) and price-to-operating-cash-flow metrics. This, coupled with the strong possibility of accelerated AWS growth, makes Amazon an attractive stock for long-term investors.
The surge in AI technology has transformed the market landscape, prompting investors to closely monitor the performance of Nvidia and Amazon, two prominent players in the AI industry. As companies continue to invest in AI, these tech giants are expected to provide valuable insights into the future of the industry and serve as key barometers of AI investment in 2024.
