Nvidia vs. Amazon: Which Tech Stock Is the Better Buy for 2024?
The tech industry is renowned for its abundance of growth stocks, which consistently deliver impressive gains over the long term. With the ever-expanding nature of the industry, companies that thrive in this sector often reward investors with reliable growth.
As shown in the chart below, the Nasdaq-100 Technology Sector index has significantly outperformed both the Nasdaq Composite and S&P 500 over the past decade. It’s no wonder that successful holding companies, such as Warren Buffett’s Berkshire Hathaway, allocate a significant portion of their portfolios to tech stocks. Berkshire’s stock has appreciated at an impressive compound annual growth rate (CAGR) of nearly 20% from 1965 to 2022.
When it comes to tech stocks, Nvidia (NASDAQ: NVDA) and Amazon (AMZN) stand out as attractive options. Both companies dominate their respective industries, with Nvidia leading in high-powered chips and Amazon being home to the world’s largest cloud platform.
Chipmakers are considered one of the best ways to invest in the tech industry. These companies are at the forefront of powering various sectors with their hardware, providing numerous growth catalysts. In the case of Nvidia, its chips are heavily utilized in a wide range of products, including artificial intelligence (AI) models, cloud platforms, video game consoles, laptops, and custom-built PCs.
Nvidia’s success in the tech industry is evident from its stock’s astronomical rise of over 1,400% in the past five years, accompanied by a 130% increase in annual revenue. Additionally, the surge in demand for AI technology last year suggests that Nvidia has a lot more to offer to new investors.
For years, Nvidia has dominated the graphics processing unit (GPU) market while other chipmakers, like Advanced Micro Devices and Intel, have mainly focused on central processing units (CPUs). As a result, Nvidia has gained a significant advantage in industries that heavily rely on GPUs, such as AI.
The increased interest in AI has caused demand for GPUs to skyrocket in 2023, and Nvidia is perfectly positioned to supply its chips to meet the growing market needs. Consequently, its stock has experienced a remarkable year-over-year increase of around 250%. In the third quarter of 2023, the company posted an impressive revenue growth of 206%, with operating income surpassing 1,600%.
The AI market is projected to expand at a compound annual growth rate (CAGR) of 37% through 2030, reaching a value of approximately $257 billion this year. This sector presents as one of the fastest-growing areas in the tech industry, making Nvidia’s leading role in AI chips a compelling reason for investors to consider its stock.
On the other hand, Amazon boasts a strong presence in multiple areas of the tech industry. Its retail site has attained a leading market share in e-commerce across various countries, allowing the company to venture into cloud computing, consumer robotics, and even space satellites.
However, the primary reason investors should consider Amazon’s stock is its cloud platform, Amazon Web Services (AWS). AWS currently holds a 32% market share in the cloud market, outperforming its rivals Microsoft Azure and Alphabet’s Google Cloud. The cloud industry is projected to grow at a CAGR of 20% until at least 2030, surpassing $2 trillion in value.
Furthermore, AWS has enabled Amazon to establish a lucrative position in the field of AI. As businesses increasingly seek ways to integrate AI technology into their workflows, they turn to cloud services to fulfill their needs. AWS has responded to this rising demand by adding a diverse range of AI tools to its portfolio over the past year. Additionally, AWS plans to venture into chip production, further diversifying its role in the burgeoning AI arena.
While AWS accounts for 16% of Amazon’s revenue, it makes up more than 60% of the company’s operating income. Cloud computing is an immensely profitable business, which further strengthens Amazon’s long-term outlook.
Both Nvidia and Amazon have earned a spot among the Magnificent Seven of tech, alongside companies like Apple, Microsoft, Alphabet, Meta Platforms, and Tesla. These top performers in the industry present significant potential for investors in the long run. However, earnings-per-share (EPS) estimates suggest that Nvidia might offer greater growth potential in the forthcoming years.
According to projections, Nvidia’s earnings could reach $24 per share over the next two fiscal years, while Amazon may achieve approximately $5 per share. Calculating these figures by multiplying them with each company’s respective forward price-to-earnings ratios (Nvidia’s at 44 and Amazon’s at 43), the expected stock prices are approximately $1,056 for Nvidia and $202 for Amazon.
Considering their current positions, these projections indicate a potential 96% increase for Nvidia’s stock and a 34% increase for Amazon’s stock over the next two fiscal years. While both figures are impressive, Nvidia’s higher percentage, coupled with its booming chip business, positions it as a better tech stock and a must-buy for 2024.
As investors weigh their options in the tech industry, considering the long-term potential of both Nvidia and Amazon is crucial. Each company offers unique strengths and growth opportunities in their respective niches. By carefully assessing their financial outlook, investor preferences, and risk tolerance, individuals can make informed decisions regarding which tech stock aligns better with their investment goals for 2024.
