Market capitalization is the total value of a company's stock, or the amount of shares multiplied by the share price. It doesn't tell you anything about a company's performance or prospects, but it does tell you what the market thinks of it, to some extent. The more favored a stock is, the likelier it is to have a high market cap. However, most newer companies have lower market caps because they haven't even started growing. So, it's a combination of investor sentiment and a proven track record.
The most valuable companies on the stock market by far these days are big tech stocks, with the top three slots going to Apple, Nvidia, and Microsoft, although those three slots have changed hands a few times over the past few months. But you might be surprised that the next tier of most valuable companies are mostly large, older value stocks, like Berkshire Hathaway (which just achieved trillion-dollar status), Walmart, and Visa.
Nvidia stock is up 250% over the past year, which is how it jumped past older standards to reach the top of the market cap heap. It's on fire as clients line up to buy its graphics processing Units (GPU) that power generative artificial intelligence (AI), reporting fabulous sales and earnings growth. But are competitors catching up?
Amazon(NASDAQ: AMZN) is one Nvidia client that's also building its own chips. But it does a lot more than that. It has more revenue than Nvidia, Apple, and Microsoft, but it's only the fifth most valuable company on the market. Nvidia is right up there with Apple at nearly $3.5 trillion, but Amazon is way behind at almost $2 trillion. Here's why Amazon could soar past Nvidia over the next five years.
Amazon has no competition
Amazon's artificial intelligence efforts are gaining a lot of attention, but right now, it's just a small part of the vast Amazon empire. Amazon controls more than a third of all U.S. e-commerce, and that brings in the revenue that powers the entire enterprise.
Not only is Amazon likely to keep that lead, but it also has the opportunity to widen it by improving its logistics network, speeding up delivery times, adding products, and making Prime members even more reliant on its business. These are things that are already happening. E-commerce is also growing at a faster pace than physical retail, which means more organic growth for Amazon.
Generative AI is a new part of Amazon Web Services (AWS), Amazon's cloud computing business. It has launched a barrage of services targeting the gamut of needs across the board to beef up this business, and it's creating its own processing chips not to compete with leader Nvidia, but to offer an economic alternative for clients who want better pricing. AWS is the world leader in cloud computing, and like e-commerce provides the sales, AWS provides the bulk of the company's operating income.
Nvidia, on the other hand, has some built-in risks in its narrower business. Since generative AI is the hottest tech trend today, it's susceptible to new competition from some very formidable giants, including Apple and Advanced Micro Devices. That, along with its high-flying valuation, is what's causing some investors to take a step back from it right now.
Can Amazon make the jump?
OK, so Amazon has what it takes to keep climbing. But can it become more valuable than Nvidia? Currently, Nvidia's market cap is about 1.5 times that of Amazon. Simplistically, Amazon stock would need to gain 75% to match Nvidia's total stock value, or Nvidia would need to lose almost 45% of its value, or some simultaneous combination.
Let's say Amazon can grow its revenue by 50% over the next five years. That implies a compound annual growth rate of 8.4%, which is lower than current growth rates. Keeping the price-to-sales ratio the same, that would lead to a 50% increase in the market cap. Amazon stock is already up nearly 50% over the past year, and it's likely that it will increase a lot more than that over the next five years considering tailwinds and improvements.
The question is whether or not Nvidia will slow down. It should still be the important player in GPUs in five years from now, but there will be many other players, and there might be new trends that take over AI. By contrast, Amazon is a no-brainer for growing and creating shareholder value. And in five years, it's likely to rise a few slots in the market cap list, moving past Nvidia and other stocks on the way.
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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 positions in Apple. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Apple, Berkshire Hathaway, Microsoft, Nvidia, Visa, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
