Why Nvidia Outshines Amazon in 2025
Amazon and Nvidia: A Symbiotic Relationship
Before delving deeper, it's crucial to note that Amazon's cloud computing arm, Amazon Web Services (AWS), is a significant client of Nvidia. This creates a scenario where both companies can thrive and achieve market-beating gains. On December 3rd, Nvidia announced that its latest technology, including the Blackwell architecture for generative artificial intelligence (AI), would be available on AWS. A new computing platform through AWS Marketplace Private Offers will enable enterprises to build AI models with Nvidia's expert support. AWS has also developed liquid-to-chip cooling across its data centers, offering air and liquid-cooling capabilities for powerful AI supercomputer systems like the Nvidia GB200 NVL72. Nvidia is the undisputed leader in chips for hyperscalers, and AWS is the leading hyperscaler, commanding a significant market share. According to a November 1 report by Synergy Research Group, AWS holds a 31% market share in the cloud market compared to 20% for Microsoft and 13% for Google. However, AWS doesn't have the same dominance in cloud as Nvidia does in data center chips.The Superior Business Model of Nvidia
Throughout its history, Amazon has demonstrated remarkable flexibility, branching into various end markets and weathering economic uncertainties. The company's network effects, leading cloud position, growing e-commerce business, and combination of diversification and disruption make it a compelling investment. AWS' operating income accounted for 62% of Amazon's total operating income in the nine months ending September 30, 2024. Compared to the same period last year, AWS revenue increased by $12.22 billion, while operating expenses only rose by $479 million. This led to significant operating income growth. However, without AWS, Amazon's growth would be much slower. AWS has expanded Amazon beyond e-commerce and made it a more robust business. In contrast, Nvidia's data center business has been a game-changer. In its recent third-quarter fiscal 2025 (ended October 27), Nvidia reported $30.77 billion in revenue, with $27.64 billion from compute and $3.13 billion from networking. The compute and networking segment generated an operating income of $22.081 billion, resulting in an astonishingly high operating margin of 71.8%. For comparison, Amazon's overall operating income in the same quarter was $17.41 billion, and AWS' margins are not as high as Nvidia's. Nvidia's gaming and AI PC, professional visualization, and automotive and robotics segments combined for $4.22 billion in revenue, with the graphics segment earning $1.502 billion in operating income. Five years ago, Nvidia's data center business was smaller than its graphics segment. Today, data center revenue makes up over 85% of Nvidia's total revenue and over 90% of its operating income. In this quarter, Nvidia stated that cloud service providers accounted for around 50% of its data center revenue, while the rest came from consumer internet and enterprise companies. These customers are among the highest quality in the world and have the financial capacity to invest through market cycles. Nvidia has transitioned from a chip company for graphics to a dominant force in data centers. In contrast, Amazon still engages in multiple activities, but AWS is its best-performing segment. Nvidia has better margins, more growth potential, a more commanding market share, and is a more focused investment thesis on data center growth compared to Amazon, which spans multiple industries and is more complex.Nvidia's Valuation: A Fair Assessment
Nvidia's main risks include a slowdown in AI capital spending or increased competition eroding margins. However, so far, these have not materialized. Nvidia has been an earnings-driven story, and earnings growth has outpaced the stock price.NVDA data by YChartsEventually, Nvidia's growth is likely to slow down. But until then, it's difficult to label it as a bubble as the business is generating real bottom-line results. This is not a company with future potential; it is delivering remarkable results right now. Due to its earnings-driven nature, Nvidia's valuation remains reasonable. It has a higher price-to-earnings (P/E) ratio and forward P/E ratio than Amazon. But as shown in the chart, if Nvidia continues to grow its earnings at a faster pace, the valuation gap between the two companies could narrow.NVDA PE Ratio (Forward) data by YChartsInvesting in Nvidia: A Long-Term Perspective
Nvidia and Amazon are excellent companies that will benefit from increased AI spending. However, competition or a cyclical slowdown could quickly make both companies appear more expensive, leading to a significant sell-off. When investing in industry-leading growth stocks at all-time highs, it's essential to understand that the factors driving the record highs can also lead to a sell-off. Wall Street is quick to downgrade a stock based solely on short-term growth prospects. But individual investors can focus on the long-term investment thesis instead of getting caught up in the noise. Investors interested in Nvidia should continue to monitor its technological advancements and ability to monetize them. Currently, Nvidia is out-innovating its competitors and can still command high prices for its products. Moreover, its customers are performing well and can afford to pay Nvidia's prices. Nvidia is at the top of its game, and there is no concrete reason to believe it will change. But if the cycle turns, signs will emerge from Nvidia's top customers like AWS and Meta Platforms. The stock price is driven by earnings growth, which is expected to continue next year. In conclusion, Nvidia has a simpler and more effective business model than Amazon and superior growth, making it a better investment choice at present.Unlock the Potential of These 2025 Stocks
Amazon: Pioneering AI in the Digital Age
Amazon is at the forefront of artificial intelligence innovation. Since unveiling its AI technology two years ago, it has been leading the charge, offering a wide range of services to AWS clients and developing its own GPUs to compete with Nvidia. The business is booming, with the AI business generating billions in revenue and the AWS platform attracting new clients. CEO Andy Jassy believes that this is just the beginning, as 90% of global IT spending still goes towards on-premises systems while 10% goes to the cloud. Amazon is well-positioned to reap the benefits as this shift occurs. It is using AI throughout its business, providing generative AI solutions for third-party sellers and data analytics for advertising clients. Despite being a megacap company, Amazon continues to achieve double-digit percentage revenue growth and is highly profitable. 2025 could be a particularly strong year as the AI trend drives it forward.Amazon's AI initiatives have not only transformed its own operations but have also opened up new opportunities in the market. The company's ability to leverage AI across different business segments has given it a competitive edge. For example, in e-commerce, Amazon's AI-powered recommendation system has enhanced the shopping experience for customers, leading to increased sales and customer satisfaction. Additionally, in logistics, AI is being used to optimize delivery routes and improve inventory management, reducing costs and improving efficiency.
The development of Amazon's own GPUs is another significant milestone. By competing with Nvidia in the GPU market, Amazon is able to provide its customers with more powerful computing capabilities and accelerate the adoption of AI technologies. This not only benefits AWS clients but also positions Amazon as a major player in the AI hardware space.
SoFi: The Lending Business Rebounds
For SoFi, the key trend is the decline in interest rates. The company's stock has been under pressure this year due to challenges in its core lending business. However, lower interest rates are now helping the lending segment, and the rest of its business is in excellent shape.SoFi has implemented a strategy of cross-selling and upselling to increase customer engagement. It also acquired Golden Pacific Bancorp to obtain a banking charter, enabling it to offer a wider range of financial services. The company now has three business segments: lending, financial services, and tech platform.The lending segment still accounts for the majority of revenue and profits, and its growth is accelerating. In the third quarter, revenue increased by 14% and contribution profit rose by 17%. The financial services segment, which includes non-lending services like bank accounts and investments, saw a remarkable 102% year-over-year revenue increase and a significant improvement in contribution profit from $3 million to $100 million. The tech platform, a white-label business-to-business platform, also performed well, with a 14% revenue increase and a 2% contribution profit increase.On a consolidated basis, SoFi has reported four consecutive quarters of positive net income, and management expects this trend to continue into 2025. With strong customer engagement, hundreds of thousands of new customers, and a revitalized lending business, SoFi stock could be a standout performer in 2025.SoFi's diversified business model has allowed it to weather the challenges in the lending market and capitalize on the opportunities presented by lower interest rates. The acquisition of Golden Pacific Bancorp has provided the company with a solid banking foundation, enabling it to offer a comprehensive suite of financial services. This has not only increased customer loyalty but has also opened up new revenue streams.
The company's focus on customer engagement through cross-selling and upselling has been a key driver of its growth. By offering additional products and services to its existing customer base, SoFi has been able to increase revenue and profitability. This approach has also helped the company build a strong brand and a loyal customer following.
Carnival: Unprecedented Demand in the Travel Industry
Carnival's tailwind is lower inflation, along with the benefit of lower interest rates. After shutting down its operations for over a year during the pandemic, Carnival has made a remarkable comeback. However, it is still recovering in two important aspects. It has yet to achieve a full year of positive net income since 2019, and it has a significant amount of debt to repay after taking out loans to stay afloat during the revenue drought.Profitability is on the rise. In its fiscal 2024 third quarter, adjusted EBITDA increased by 25% to $2.8 billion, ending on August 31. Management also raised its guidance, expecting a 40% adjusted EBITDA increase for the fiscal year. Operating income increased by $554 million to $2.2 billion, and the company reported $1.7 billion in net income. Wall Street is forecasting earnings per share of $1.33 for 2024.Regarding debt, Carnival still has nearly $30 billion, but it has been making efficient repayments, and lower interest rates are making the process easier. With inflation largely under control, people have more disposable income to spend on expensive cruise tickets. Carnival is entering 2025 in its best-ever booked position, with more than half of its inventory sold out for the year. These trends are expected to continue into 2026 bookings.Carnival's strong demand is a testament to the resilience of the travel industry and the company's ability to adapt to changing circumstances. The company's focus on customer experience and safety has helped it regain the trust of travelers and attract a large number of bookings. Additionally, Carnival's fleet expansion and investment in new ships have enabled it to meet the growing demand and offer more travel options to customers.
The lower interest rates have also been a boon for Carnival, as it reduces the company's borrowing costs and improves its financial position. This allows Carnival to invest in further growth and enhance its operations, ensuring its long-term success in the highly competitive travel market.
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Chevron: A Reliable Dividend Player in the Oil and Gas Sector
Chevron (CVX), an oil and gas producer, reported better-than-expected results in the third quarter of 2024. The company returned $7.7 billion to shareholders during this period, with $4.7 billion in share buybacks and $2.9 billion in dividends. At a quarterly dividend of $1.63 per share (or an annualized $6.52), CVX offers a dividend yield of 4.1%. Goldman Sachs analyst Neil Mehta has reiterated a buy rating on CVX and slightly raised the price target to $170 from $167. This reflects his updated earnings estimates. Mehta remains optimistic about Chevron due to expectations for volume and [free cash flow] inflection driven by Tengiz in Kazakhstan, where the company is demonstrating strong execution progress. He also highlighted the company's attractive capital returns profile that includes dividends and buybacks, with expectations of a yield of around 10% in both 2025 and 2026. Additionally, favorable updates on Chevron's Gulf of Mexico projects, where the company aims to increase production to 300 Mb/d by 2026, and its cost reduction efforts, which aim to generate $3 billion of structural cost savings by the end of 2026, are other positive factors. Mehta ranks No. 391 among more than 9,200 analysts tracked by TipRanks. His ratings have been profitable 62% of the time, delivering an average return of 11%.
Chevron's consistent performance and focus on shareholder returns make it a reliable dividend player in the oil and gas sector. Its ability to navigate through volatile market conditions and deliver value to shareholders is a key strength.
Energy Transfer: A Midstream Energy Company with Attractive Yields
Energy Transfer (ET), a midstream energy company structured as a limited partnership, made a quarterly cash distribution of $0.3225 per common unit for the third quarter, representing a 3.2% year-over-year rise. With an annualized distribution of $1.29 per common unit, ET pays a yield of 6.8%. JPMorgan analyst Jeremy Tonet reaffirmed a buy rating on ET and raised his 12-month price target to $23 from $20. The analyst noted that the company's third-quarter adjusted earnings before interest, taxes, depreciation and amortization of $3.96 billion exceeded JPMorgan's estimate of $3.912 billion and the Street's consensus of $3.881 billion. While Energy Transfer reiterated its full-year adjusted EBITDA guidance in the range of $15.3 billion to $15.5 billion, Tonet believes the company is positioned to surpass the high end of that guidance as the full impact of its optimization efforts is not yet reflected in the outlook. Tonet further highlighted that the integration of the WTG Midstream acquisition is on track and Energy Transfer has approved several projects to improve reliability, reduce losses and enhance system efficiencies. Overall, Tonet thinks ET is trading at a discounted price, offering a lucrative entry point for investors. He sees [natural gas liquids] logistics, particularly [U.S. Gulf Coast] and Marcus Hook exports, as key growth engines for ET, given global LPG demand growth. Tonet ranks No. 420 among more than 9,200 analysts tracked by TipRanks. His ratings have been successful 61% of the time, delivering an average return of 10.5%.
Energy Transfer's midstream operations and attractive yields make it an appealing investment option for those seeking exposure to the energy sector. The company's focus on optimization and growth is likely to drive future performance.
Enterprise Products Partners: A Midstream Energy Services Leader
Enterprise Products Partners (EPD), a partnership that offers midstream energy services, distributed $0.525 per unit for the third quarter, representing a 5% annual increase. With an annual distribution of $2.10 per common unit, EPD offers a yield of 6.4%. The JPMorgan analyst said EPD's Q3 performance benefited from three natural gas processing plants that started commercial operations over the past year. The third quarter also saw wide natural gas spreads between Waha and other market hubs. At its Investor Day, EPD emphasized that one of its key operating objectives for 2024 was to enhance the reliability and utilization rates of its two propane dehydrogenation (PDH) plants. Tonet said EPD expects its PDH enhancements to deliver an incremental $200 million in cash flows. Capital allocation is favorable, with EPD repurchasing $76 million in stock in the third quarter, up from $40 million in the second quarter. Enterprise plans to continue making buybacks in an annual range of $200 to $300 million over the remainder of 2024 and 2025. Tonet continues to be bullish on EPD stock, stating that it "consistently delivered strong results throughout the various cycles, weathering downdrafts yet still participating during upward cycles." His optimism is also based on EPD having the largest and most integrated natural gas liquids (NGL) footprint in North America, supporting superior operating leverage. He believes EPD's financial flexibility gives it an edge over its peers. Given all these positives, Tonet reiterated a buy rating on EPD stock and increased his price target to $37 from $34.
Enterprise Products Partners' leadership in midstream energy services and its focus on operational excellence make it a standout investment. The company's ability to generate consistent cash flows and deliver value to shareholders is a testament to its strength.