Did Amazon say “checkmate” to Nvidia?

Much of the ongoing discussion about artificial intelligence (AI) centers around the ‘Magnificent 7’ stocks. Over the past 18 months, tech giants have made a series of headline-grabbing multibillion-dollar investments in AI initiatives.

Among the major companies of the Magnificent Seven are: nvidia and Amazon (AMZN -1.61%). Nvidia appears to have strong momentum in all aspects of the AI ​​space, but don’t overestimate the company’s dominance.

Let’s take a look at what’s driving Nvidia’s growth today, and how Amazon could outperform the company in the long term.

NVIDIA is the leader in AI chips, but…

Nvidia designs sophisticated semiconductor chips called graphics processing units (GPUs). GPUs have all kinds of applications, including large-scale language model training, machine learning, and autonomous driving.

Aside from the technology sector, generative AI also has use cases in healthcare. Nvidia’s GPUs are also used by major pharmaceutical companies including: novo nordisk — Creator of Ozempic and Wegovy.

Not surprisingly, Nvidia’s prolific influence has helped the company capture a whopping 80% share of the AI ​​chip market.

While Nvidia’s lead may seem insurmountable, keep in mind that the AI ​​revolution is still in its early stages. Although Amazon may be behind, I’d argue that the company is just slowing down and preparing for a marathon-style race.

Image source: Getty Images.

…some of the largest tech companies are moving on their own.

The AI ​​startup scene is literally crowded. One of the most notable players is a machine learning company called Hugging Face. salesAmazon, Google, Nvidia, intel, advanced micro devices, Qualcommand IBM As an investor.

Did that syndicate of investors discover anything? Many of them are chip companies or cloud computing experts.

Conveniently, Amazon is both. In addition to Amazon Web Services (AWS), Amazon is developing a series of training and inference chips. Aptly named Trainium and Inferentia, these chips are sparking a new source of growth for AWS as cloud computing becomes more competitive.

Hugging Face also recently announced that it will be partnering with AWS to deploy workloads on the latest version of Inferentia. I think this is a huge win for Amazon and ultimately serves as a stepping stone for the company to move away from its dependence on Nvidia products in the long term.

Another way Amazon is starting to build momentum is by investing $4 billion in Anthropic, another AI startup. Like Hugging Face, Anthropic is training its generative AI models on Amazon’s Trainium and Inferentia chips and is using AWS as its primary cloud provider.

If this isn’t enough to portray Amazon as a serious competitor in the AI ​​space, consider the company’s planned $11 billion investment to build data centers. Nvidia also competes in the data center space, while companies like Amazon trust They have their own plans.

Is now a good time to invest in Amazon stock?

Currently, Amazon stock is trading at around $179 per share. This is very close to the company’s all-time high of $189.

With this in mind, you might think Amazon stock is expensive. However, the chart below shows something different.

AMZN PE Ratio Data from YCharts

Over the past 12 months, Amazon’s stock price has risen about 50%. In contrast, the company’s earnings per share (EPS) over the past 12 months have increased by 181%.

Because the company’s earnings are growing faster than its stock price, Amazon’s price-to-earnings (P/E) multiple is actually refuse year after year. This means that even though the stock is at an all-time high, Amazon’s price is technically cheaper now than it was last year.

I think Amazon is underrated when it comes to AI. The company is investing aggressive amounts and is already generating new momentum. Over time, I think the moves the company is making today will pay off in a big way and give Amazon the flexibility to gain a competitive advantage.

To me, Amazon stock is very cheap and represents a strong long-term opportunity in the AI ​​space. Nvidia will probably remain an AI heirloom in the short term, but I think Amazon is making some savvy chess moves that will ultimately position AI as a superior long-term position.