Nvidia (NASDAQ: NVDA) has run circles around other artificial intelligence (AI) stocks over the past few years thanks to its leadership in the field. The company holds an 80% share of the AI chip market, and that has helped it generate triple-digit revenue growth quarter after quarter. As a result, the stock soared more than 2,200% over the past five years.
By comparison, its other top technology peers, including Apple and Alphabet, saw their shares rise in the double or triple digits during that period.
Though I expect Nvidia to continue as a winning stock over time, from now until the end of the year another stock could step ahead. Investors have worried about Nvidia’s dependence on AI revenue in an uncertain economy and the competition it faces in the chip market. In fact, Nvidia already has lost some momentum, falling 12% over the past three months.
So, investors could turn to another company that is benefiting from the AI boom but brings in billions of dollars in revenue from other businesses, too. This player might be more resilient through a difficult or uncertain economy, and my prediction is that this AI stock will outperform Nvidia by year end. Let’s find out more.
This stock is a household name
The stock I predict will beat Nvidia by year end is Amazon (NASDAQ: AMZN). Its booming e-commerce business sells essentials, general merchandise, and even various devices, books, and movies. It has become a household name, especially thanks to its Prime subscription service, with more than 200 million members.
This helped Amazon report more than $121 billion in North American and international revenue in the most recent quarter, gaining in both of these areas year over year.
And the company might see more sign-ups for Prime in the coming weeks as it plans another Prime Big Deal Days sales event in October. With bargains exclusively for Prime members, these events are known to boost membership in the service.
Even better, Amazon usually does well when it comes to retaining members. After a 30-day trial period last year, 72% of users subscribed to the service, according to Statista.
Regardless of the economy, customers see value in a Prime membership because they can buy essentials for good prices and get fast and free delivery.
On top of this sure and steady revenue source, investors also benefit from growth thanks to Amazon Web Services (AWS), its cloud computing business, and this is where we’ll find the company’s AI strengths. AWS offers a broad range of cloud services, and it has gone all in on AI, selling its own lower-priced chips, premium Nvidia chips, a full-service AI platform known as Amazon Bedrock, and much more.
Management says it aims to be involved in every layer of AI — from chips to power programs to apps.
Amazon’s profit driver
All of this has helped AWS reach an annual revenue run rate of $105 billion this year, particularly important because AWS has traditionally been Amazon’s profit driver. In the most recent quarter, AWS operating income made up 63% of the company’s total.
In recent times, Nvidia’s growth has topped that of Amazon and other tech companies and has wowed investors. But as sentiment becomes more cautious, investors might turn to companies such as Amazon that are involved in AI but are less dependent on it than Nvidia. Right now, both of these players are trading around the same level, at 37 times forward earnings estimates, and Amazon might seem like a safer bet for the price.
This doesn’t mean Nvidia and the AI market won’t deliver on their promises over the coming years; I’m confident that any short-term uncertainty in the market won’t change this exciting long-term story.
But my prediction is that Nvidia, after recently losing momentum, might leave room for others to jump ahead on share price performance in the coming months. And Amazon is likely to take the lead.
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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. Adria Cimino has positions in Amazon. The Motley Fool has positions in and recommends Alphabet, Amazon, Apple, and Nvidia. The Motley Fool has a disclosure policy.
Prediction: This Artificial Intelligence (AI) Stock Will Outperform Nvidia by Year End was originally published by The Motley Fool
