The storied Dow Jones Industrial Common (^DJI -0.28%) is likely one of the oldest and most respected inventory market indexes. The 30 Dow parts are industry-leading blue chip shares representing their respective inventory market sectors. However the Dow has undergone main transformations during the last 5 years.
The 2 newest modifications got here this yr, with Amazon (AMZN 2.94%)changing Walgreens Boots Alliance in February and Nvidia (NVDA -1.81%) changing Intel in November.
Amazon and Nvidia wasted no time proving their worth in modernizing the Dow, with each parts outperforming the S&P 500 (^GSPC 0.25%) and Dow indexes yr thus far. However buyers care extra about the place an organization goes than the place it has been.
Here is why Nvidia stands out as a greater purchase than Amazon for 2025, and a few elements to think about when shopping for main development shares at all-time highs.
Picture supply: Getty Photographs.
Succeeding collectively
Earlier than getting too far into our dialogue, it is value mentioning that Amazon’s cloud computing arm, Amazon Internet Companies (AWS), is a serious buyer of Nvidia. So there is definitely a state of affairs the place each corporations thrive and submit market-beating positive factors, or slowdowns at AWS trickle right down to Nvidia.
On Dec. 3, Nvidia introduced that its newest tech, together with its Blackwell structure for generative synthetic intelligence (AI), was coming to AWS. A brand new computing platform accessible via AWS Market Non-public Provides will permit enterprises to construct AI fashions with the help of Nvidia consultants. AWS has developed liquid-to-chip cooling throughout its information facilities with a brand new answer that gives air- and liquid-cooling capabilities for highly effective AI supercomputer methods just like the Nvidia GB200 NVL72.
Nvidia is the undisputed chief in chips for hyperscalers, and AWS is the main hyperscaler — commanding roughly the identical market share as Microsoft Cloud and Alphabet-owned Google Cloud mixed. In keeping with a Nov. 1 report from Synergy Analysis Group, AWS holds a 31% market share over the cloud market in comparison with 20% for Microsoft and 13% for Google.
Nonetheless, AWS would not have practically the dominance in cloud as Nvidia does in chips for information facilities.
The higher enterprise mannequin
Over its historical past, Amazon has been a remarkably versatile firm, branching into completely different finish markets and enduring a number of intervals of financial uncertainty. The corporate’s community results, main cloud place, rising e-commerce enterprise, and mixture of diversification and disruption are legitimate causes to purchase Amazon inventory like there isn’t any tomorrow.
AWS’ working revenue comprised 62% of Amazon’s complete working revenue for the 9 months ending Sept. 30, 2024. In comparison with the identical interval final yr, AWS income elevated by $12.22 billion, however its working bills solely elevated by $479 million, so practically all of that income acquire translated to working revenue development. Nonetheless, with out the contribution from AWS, Amazon merely is not rising in a short time.
AWS has expanded Amazon far past e-commerce and made it a greater enterprise, however not in the identical approach that chips for information facilities have been a sport changer for Nvidia.
In Nvidia’s current quarter, which was third-quarter fiscal 2025 (ended Oct. 27), Nvidia reported $30.77 billion in income consisting of $27.64 billion from compute and $3.13 billion from networking. Working revenue from the compute and networking phase got here in at $22.081 billion — giving the phase a ridiculously excessive working margin of 71.8%. For context, Amazon — as an entire — booked $17.41 billion in working revenue in its current quarter. And AWS’ margins aren’t practically as excessive as Nvidia’s.
Nvidia’s gaming and AI PC, skilled visualization, and automotive and robotics segments mixed for $4.22 billion in income. The graphics phase earned simply $1.502 billion in working revenue.
It is onerous to imagine, however 5 years in the past, Nvidia’s information heart enterprise was smaller than its graphics phase. Whereas at this time, information heart makes up over 85% of Nvidia’s income and over 90% of its working revenue. Within the quarter, Nvidia mentioned that cloud service suppliers made up round 50% of its information heart income, whereas the rest consisted of client web and enterprise corporations. These prospects (like AWS) are a number of the highest-quality prospects on this planet. They’re the precise form of prospects Nvidia desires as a result of they’ve the monetary means to take a position via market cycles.
Nvidia went from a chip firm for graphics to a chip firm for information facilities. In distinction, Amazon nonetheless does many various issues, however the very best a part of its enterprise is AWS. Nvidia has higher margins and extra development potential. It has a extra commanding market share. And it’s a extra pure-play funding thesis on information heart development, whereas Amazon’s funding thesis crosses extra industries and is extra advanced.
Nvidia has a good valuation
Nvidia’s greatest dangers are a slowdown in AI capital spending or competitors coming alongside and eroding margins. However up to now, that hasn’t occurred. Nvidia has up to now been an earnings-driven story. In reality, earnings development has outpaced the expansion within the inventory worth.
NVDA information by YCharts
Finally, Nvidia’s development will most likely decelerate. However till that occurs, it is onerous to name Nvidia a bubble as a result of the enterprise is delivering actual, bottom-line outcomes. This is not an organization that has the potential to do superb issues sooner or later; somewhat, it’s delivering unbelievable outcomes proper now.
As a result of Nvidia has been an earnings-driven story, its valuation stays affordable. Nvidia has a better price-to-earnings (P/E) ratio and ahead P/E ratio than Amazon. However as you may see within the chart, the hole between the valuations of each corporations may slim if Nvidia continues to develop its earnings at a quicker tempo.
NVDA PE Ratio (Ahead) information by YCharts
Solely purchase Nvidia when you have a long-term mindset
Nvidia and Amazon are wonderful corporations that stand to learn from increased AI spending. Nonetheless, competitors or a cyclical slowdown may rapidly make each corporations look costlier, resulting in a steep sell-off.
When shopping for industry-leading development shares at all-time highs, it is essential to grasp that the elements contributing to the file highs might be the identical ones resulting in a sell-off. Wall Avenue will waste no time downgrading a inventory primarily based solely on its near-term development prospects. Nonetheless, the excellent news is that particular person buyers do not must get caught up within the noise and, as an alternative, can give attention to the long-term funding thesis.
Buyers all for Nvidia ought to proceed to watch its tempo of technological developments and skill to monetize these enhancements. At the moment, Nvidia is out-innovating its competitors, so it may well nonetheless cost high greenback for its merchandise. Moreover, its prospects are doing so nicely that they’ll afford to pay just about no matter Nvidia is charging.
Nvidia is on the high of its sport, and there has but to be any concrete motive to imagine it can change. But when the cycle does flip, there might be indicators from Nvidia’s high prospects like AWS and Meta Platforms. The inventory worth continues to be pushed by earnings development, which ought to proceed subsequent yr.
In sum, Nvidia has a less complicated and more practical enterprise mannequin than Amazon and significantly better development, making it the higher purchase now.
John Mackey, former CEO of Entire Meals Market, an Amazon subsidiary, is a member of The Motley Idiot’s board of administrators. Randi Zuckerberg, a former director of market improvement and spokeswoman for Fb and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Idiot’s board of administrators. Suzanne Frey, an government at Alphabet, is a member of The Motley Idiot’s board of administrators. Daniel Foelber has no place in any of the shares talked about. The Motley Idiot has positions in and recommends Alphabet, Amazon, Intel, Meta Platforms, Microsoft, and Nvidia. The Motley Idiot recommends the next choices: lengthy January 2026 $395 calls on Microsoft, quick February 2025 $27 calls on Intel, and quick January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure coverage.
