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The world was introduced to Nvidia in 2024. The semiconductor company is the leading seller of computer chips for artificial intelligence (AI) data centers, which are getting a huge boost in demand. Nvidia's revenue and profits have soared in the last few years, with investors getting uber-bullish on the stock. As of this writing, Nvidia has a market cap of $3.46 trillion, making it the largest company in the world by market value.
I think 2025 will be the year the Empire strikes back, with the rest of big tech regaining a negotiating foothold as semiconductor supply chains catch up with demand for AI products. Who will that benefit the most? My bet is Amazon (NASDAQ: AMZN), the largest cloud computing company in the world, which is the backbone of many AI tools that are growing like gangbusters.
Along with its dominant e-commerce operation, Amazon's cloud computing division will allow it to finish 2025 with the largest market cap in the world. Here's why.
Steadily expanding profit margins
Unlike the rest of the big technology companies that already have sky-high profit margins, Amazon's profitability is still vastly understated due to its propensity to invest for future growth. Last year, we started to see the company finally take its foot off the gas, a trend I think will continue in 2025.
Over the last 12 months ending in September, Amazon posted an operating margin of 9.8%, a record high. Part of this is due to the Amazon Web Services (AWS) cloud computing segment, which had an operating margin of 35%. I expect AWS margins to remain strong, but the segment is still less than 20% of Amazon's overall sales.
Margin expansion is mainly coming from Amazon's dominant North American e-commerce business, which posted an operating margin of 5.9% over the last 12 months. Still at a compressed level -- especially when you consider the tens of billions in high-margin third-party e-commerce fees, subscriptions, and advertising sales it brings in every year -- Amazon has plenty of room to bring segment profit margins even higher in 2025.
While it won't be an overnight story, Amazon can easily finish 2025 with a profit margin of 15% and most likely 20%, if it wants. The only question is how efficient its spending on research projects such as Alexa it will be.
An artificial intelligence boom for the ages
There is a clear path to Amazon expanding its profit margins in 2025. There is also reason to believe it will keep accelerating revenue growth, especially at AWS.
AWS's net sales growth went from 12% in Q3 a year ago to 19% year-over-year growth last quarter. The boom in AI spending should continue in 2025, with capital expenditure budgets seemingly going up every day. This is a good thing for AWS, as more capital expenditures mean more demand for AI computing power, which means more revenue for AWS. In fact, famous investor Softbank announced it will be investing $100 billion in AI in the United States. While all of this will not be spent on AWS data centers, the trend is here to stay.