Nvidia isn't the only AI game in town.
Nvidia (NVDA -0.71%) is the poster stock for the artificial intelligence (AI) revolution, but it's been a market-crushing stock for much longer than the current hype might suggest.
It's made a stunning leap over the past year, up more than 200% and jumping past Alphabet and Amazon (AMZN 0.09%) to reach the third-largest market cap on the stock market at nearly $3 trillion.
Is this the end of the road? Almost definitely not. Nvidia is still the main producer of chips for generative AI, and it has many other products that drive progress in the tech industry.
However, some investors think their dollars will work better right now in other stocks. Several billionaire investors sold off shares of Nvidia in the 2024 first quarter, including Stanley Druckenmiller of Duquesne, who sold 441,551 shares; Ken Griffin of Citadel Advisors, who sold 2,462,716 shares; Israel Englander of Millennium Management, who sold 720,004 shares; and John Overdeck and David Siegel of Two Sigma, who sold 420,801 shares.
Instead, many billionaire investors are buying another trillion-dollar market cap stock: Amazon. Englander of Millennium Management bought 2,390,755 shares in the first quarter, while Citadel's Griffin bought 6,577,909 shares. Ken Fisher of Fisher Asset Management bought 785,018 shares, and other billionaires bought shares as well.
Should you buy Amazon stock too?
The generative AI revolution
As with Nvidia, many of Amazon's opportunities are tied to AI. Amazon has emerged as a leader in AI technology, and it's using it throughout its empire of businesses.
First and foremost is Amazon Web Services (AWS), its cloud computing business. Amazon is the top cloud computing company in the world, with 31% of overall market share.
Amazon has developed a competitive set of groundbreaking generative AI services to appeal to any kind of business client. It has three tiers, starting from tools for developers to create their own large language models (LLMs), moving to semi-custom solutions with Amazon's own LLMs, and finishing with turnkey programs that any layman can use. For example, it recently launched a new service for third-party vendors to input a URL to a webpage, and the tool automatically creates product descriptions on Amazon. More than 100,000 clients have already used AWS' generative AI services.
AWS is gaining momentum and accelerating again after clients began to cut budgets in the inflationary environment. Sales increased 16% year over year in the 2024 first quarter, and Amazon signed several deals, as usual, with high-profile clients. AWS is a profit machine; operating income increased 84% year over year in the first quarter to $9.4 billion and accounted for 61% of the total.
CEO Andy Jassy said, "I think there are really unbelievable growth opportunities in front of us." He explained that 85% of IT (information technology) spend is still not on the cloud, but that's going to switch and create a tremendous growth opportunity for cloud computing companies.
E-commerce is on the rise
Let's not forget e-commerce, which is almost synonymous with Amazon. Amazon accounts for 38% of overall U.S. e-commerce sales, with Walmart in second place at only 6%. This is a chasm too wide for any challenger to narrow anytime in the near future, and Amazon consistently improves its processes to maintain or widen the gap.
The company recently restructured its delivery infrastructure to eight regional warehouses instead of a national strategy, and that has already produced strong results. It's getting more packages to more customers within two days, and since there are fewer miles to travel on average, it costs Amazon less. What's probably an even more important benefit is that as customers get more products faster, they rely on Amazon for more of their everyday shopping, leading to greater loyalty that should produce long-term positive effects.
E-commerce is expected to grow at a compound annual growth rate of 9.5% over the next five years, according to Statista. That's straight up organic growth for Amazon.
What Amazon is coming for next
Amazon is no slouch in streaming, which is included in a Prime subscription, although that's been changed to the ad-supported tier. It has moved to the two-tier system like its competition and now charges more for members to watch without ads.
It has a premier film studio since its acquisition of MGM Studios, and the combined Amazon-MGM effort is already creating popular and highly watched content. It also sells its own streaming devices in addition to its smart device lineup.
One of The company's new breakout businesses is advertising. It uses the power of AI to show shoppers the products they're already shopping for and it's bringing its advertising prowess to the ad-supported streaming tier. Advertising is Amazon's fastest-growing segment, up 24% year over year in the first quarter, and there's lots of momentum here.
It's not surprising that billionaires recognize the opportunity in owing Amazon stock, and it's a great candidate for retail investors as well.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Jennifer Saibil has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Nvidia, and Walmart. The Motley Fool has a disclosure policy.
