Nvidia(NASDAQ: NVDA) has soared to the top of the list of most valuable companies in the world thanks to its best-in-class graphics processing units (GPUs). Nvidia’s chips are essential for training large language models and using them in applications. As big tech companies race to build better and better AI capabilities, they’ve been buying up Nvidia’s chips as fast as the company can provide them.
As Nvidia approaches a $4 trillion market capitalization, few other companies are even close to that value. Microsoft is the only other company with a value above $3.5 trillion. But I expect that two other companies will surpass Nvidia’s valuation within three years, even though they’re currently worth between 50% and 60% of Nvidia’s market value.
Image source: Nvidia.
As I write this, Nvidia is within 4% of the $4 trillion milestone. Not only would that make it the first company to surpass that value, it would also come after extremely fast growth. The company was worth less than $1 trillion just a couple of years ago. A company that large growing that fast is an incredible refutation of the law of large numbers.
Two factors have been driving Nvidia’s strong stock performance. First, its revenue growth has continued to impress. Total revenue climbed 69% in the first quarter to $44.1 billion. On top of that, it’s produced an extremely high gross margin each quarter as demand continues to outstrip its supply for new chip designs. Adjusted gross margin in the first quarter was 71.3%. The combination has led to incredible earnings growth for the business.
While Nvidia has managed to stay ahead of competing chipmakers in the GPU space, its biggest competitors are showing signs of catching up in performance. On top of that, a huge chunk of its business is concentrated in just a handful of big customers. And those customers are actively working to move more of their AI workloads onto custom chip designs made by other chipmakers in order to improve cost performance. Those customers are also incentivized to explore alternatives to Nvidia in order to prevent the chipmaker from price gouging them.
While Nvidia should continue to take the bulk of the share in AI chip sales, its stock is priced as if the above threats didn’t exist. That makes it a risky investment right now, and it’s not unreasonable to expect slower growth in the stock over the next three years.
That gives an opportunity for two undervalued tech giants to surpass the chipmaker in market cap. These two look like they could grow well beyond Nvidia over the next three years.
Amazon(NASDAQ: AMZN) operates the second-largest retail business in the world and the largest cloud computing platform in the world.
Like Nvidia, Amazon has seen its business benefit from the growing spending on artificial intelligence (AI). Despite its slow start in the generative AI space, Amazon Web Services (AWS) has managed to maintain its leading position and offer compelling AI services to developers. During its first-quarter earnings call, CEO Andy Jassy said its AI business is generating multiple billions of revenue for AWS and growing at triple-digit percentage rate.
That strong growth has helped expand the operating margin for AWS, which climbed to 39.5% in the first quarter. At the same time, management says demand for its servers exceeds its supply, so it’s spending heavily to expand its capacity. Total capital expenditures will total over $100 billion this year, management says. Most of that will go toward building and outfitting new data centers.
Amazon’s massive cash outlay for its growing cloud computing business is supported by the recent strength of its retail operations. In particular the company has pushed its operating margin significantly higher over the last couple of years, thanks, in part, to a reorganization of its U.S. logistics. It’s now able to ship more items to customers with faster speeds, which has also helped keep its shipping expenses low as a percentage of sales. Additionally, Amazon has seen strong growth in its high-margin advertising sales. Overall, its North American retail operating margin has expanded to 6.6% of the last 12 months and its international segment turned positive last year.
There are a couple of reasons Amazon should see its value increase substantially over the next three years. First, the strong results of its cloud and retail operations should continue for the foreseeable future. As the leading cloud provider, it’s still in pole position to attract enterprises looking to utilize AI in their operations.
Second, the company should see strong free-cash-flow growth over the next three years, as it sees growing spending on AWS with smaller steps up in capital expenditures. That could push the company toward $100 billion in free cash flow in short order. If the stock offers a 2.5% free-cash-flow yield, which is below its historical average, that would make it a $4 trillion company.
Meta Platforms(NASDAQ: META) is the largest social media company in the world with over 3.4 billion unique users across its family of apps. It’s also a leading developer of virtual and augmented reality technology.
Meta has been spending heavily on developing artificial intelligence for years, recently stepping up its investments as generative AI shows the promise to completely transform its business. Not only is Meta planning about $70 billion of capital expenditures this year to build out data centers, it’s also been on a hiring spree recently. That includes a $14.3 billion investment in Scale AI, which led the company’s CEO to migrate to Meta and head up its new AI super intelligence lab.
The company is working to catch up with leading models after its Llama 4 model disappointed developers. But with the speed of change in the industry, Meta has the capability of doing just that.
The impact of AI on Meta’s operations over the last couple of years is already notable. The company’s ad revenue climbed 16% in the first quarter on the back of both higher engagement and higher ad prices. But both could get a boost from further advances in AI.
Meta is now working on an AI agent that can develop, test, and optimize ad campaigns for marketers. This could increase existing marketers’ willingness to spend on ads while bringing in new advertisers to the Meta ads ecosystem. And if AI is better at tailoring ads to individuals than humans, it could result in higher conversions, further supporting higher ad spending on Meta’s platform.
That capability also speaks to Meta’s ability to develop AI-generated content unique for each of its users to boost overall engagement on its platform and increase advertising opportunities. Meta’s already experimenting with limited AI-generated content in its feeds.
This should support strong revenue growth for Meta over the next few years, even as it spends heavily on both generative AI and its Reality Labs segment. And if AI can push more consumers to buy wearables like Meta’s AI glasses or Oculus headsets, that could further support strong margin expansion for the business.
The stock currently trades for 29 times forward earnings expectations. But I predict Meta will outperform existing expectations over the next three years and the stock will climb rapidly as a result. Even if it maintains its current earnings multiple, average earnings growth of just 14.5% over the next three years — in line with analysts expectations — should push the stock more than 50% higher from here, approaching $3 trillion. And there’s a lot of upside from here.
Before you buy stock in Amazon, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Amazon wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider whenNetflixmade this list on December 17, 2004… if you invested $1,000 at the time of our recommendation,you’d have $692,914!* Or when Nvidiamade this list on April 15, 2005… if you invested $1,000 at the time of our recommendation,you’d have $963,866!*
Now, it’s worth notingStock Advisor’s total average return is1,049% — a market-crushing outperformance compared to179%for the S&P 500. Don’t miss out on the latest top 10 list, available when you joinStock Advisor.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Adam Levy has positions in Amazon and Meta Platforms. The Motley Fool has positions in and recommends Amazon, Meta Platforms, and Nvidia. The Motley Fool has a disclosure policy.
Seeking a Breakthrough in AI Infrastructure Market such as Heywell and Genrack “Over 400 Billion KRW in Data Center Infrastructure Investment This Year”
What Microsoft Data Center looks like [Photo = MS]
As the artificial intelligence (AI) craze drives the expansion of data center investment, leading U.S. manufacturing companies are entering this market as new growth breakthroughs.
The Financial Times reported on the 6th (local time) that companies such as Generac, Gates Industrial, and Honeywell are targeting the demand for hyperscalers with special facilities such as generators and cooling equipment.
Hyperscaler is a term mainly used in the data center and cloud industry, and refers to a company that operates a large computing infrastructure designed to quickly and efficiently handle large amounts of data. Representatively, big tech companies such as Amazon, Microsoft (MS), Google, and Meta can be cited.
Generac is reportedly the largest producer of residential generators, but it has jumped into the generator market for large data centers to recover its stock price, which is down 75% from its 2021 high. It recently invested $130 million in large generator production facilities and is expanding its business into the electric vehicle charger and home battery market.
Gates, who was manufacturing parts for heavy equipment trucks, has also developed new cooling pumps and pipes for data centers over the past year. This is because Nvidia’s latest AI chip ‘Blackwell’ makes liquid cooling a prerequisite. Gates explained, “Most equipment can be relocated for data centers with a little customization.”
Honeywell, an industrial equipment giant, started to target the market with its cooling system control solution. Based on this, sales of hybrid cooling controllers have recorded double-digit growth over the past 18 months.
According to market research firm Gartner, more than $400 billion is expected to be invested in building data center infrastructure around the world this year. More than 75% of them are expected to be concentrated on hyperscalers such as Amazon, Microsoft, Meta, and Google.
OpenAI has again confirmed that it will unify multiple models into one and create GPT-5, which is expected to ship sometime in the summer.
ChatGPT currently has too many capable models for different tasks. While the models are powerful, it can be confusing because all models have identical names.
But another issue is that OpenAI maintains an “o” lineup for reasoning capabilities, while the 4o and other models have multi-modality.
With GPT-5, OpenAI plans to unify the breakthrough in its lineup and deliver the best of the two worlds.
“We’re truly excited to not just make a net new great frontier model, we’re also going to unify our two series,” says Romain Huet, OpenAI’s Head of Developer Experience.
“The breakthrough of reasoning in the O-series and the breakthroughs in multi-modality in the GPT-series will be unified, and that will be GPT-5. And I really hope I’ll come back soon to tell you more about it.”
OpenAI previously claimed that GPT-5 will also make the existing models significantly better at everything.
“GPT-5 is our next foundational model that is meant to just make everything our models can currently do better and with less model switching,” Jerry Tworek, who is a VP at OpenAI, wrote in a Reddit post.
Right now, we don’t know when GPT-5 will begin rolling out to everyone, but Sam Altman suggests it’s coming in the summer.
While cloud attacks may be growing more sophisticated, attackers still succeed with surprisingly simple techniques.
Drawing from Wiz’s detections across thousands of organizations, this report reveals 8 key techniques used by cloud-fluent threat actors.
