Amazon and Nvidia: Giants of Tech
Amazon stands at the forefront of e-commerce and cloud computing on a global scale.
Nvidia has seen its profits skyrocket by an extraordinary 1,580% over the last five years, largely fueled by the surge of AI technology.
Meanwhile, Netflix proudly boasts over 300 million subscribers, solidifying its position as the leading streaming service.
The tech market appears to be thriving, with stocks rising by 25% this year alone. Interestingly, the Nasdaq Composite’s price-to-earnings (P/E) ratio has trended upward since March, increasing from 23.3 to 27.5.
While finding tech companies with lower P/E ratios can be challenging, there are notable names with higher ratios that have piqued interest. Some high-profile stocks are currently trading 40% to 70% below their 10-year average valuations.
Amazon (NASDAQ:AMZN), Nvidia (NASDAQ:NVDA), and Netflix (NASDAQ:NFLX) exemplify rising earnings, outpacing their stock prices and making these once-expensive stocks feel more accessible compared to their historical values.
It’s striking to realize how far Amazon has come since its humble beginning as an online bookstore in 1997. Now, it sits as the largest e-commerce entity worldwide with a market cap of around $2.4 trillion.
But Amazon’s reach extends beyond just retail. Its Amazon Web Services (AWS) is the largest cloud platform, holding a commanding 30% market share over competitors like Microsoft and Google Cloud. In fact, AWS generated over $10 billion in profits last quarter—surpassing the earnings of its entire e-commerce sector.
A decade ago, Amazon’s P/E ratio was extremely elevated, averaging around 147.6. Now, it sits at a more modest forward P/E of 34.1, which still exceeds the Nasdaq Composite but represents a significant discount when compared to its historical scale.
Nvidia, on the other hand, has surpassed even Amazon in market value, now standing as the most valuable firm with a cap of over $5 trillion. Its impressive growth stems from its dominance in manufacturing graphics processing units (GPUs) essential for high-performance computing, especially in AI and data center applications, where it holds a remarkable 90% market share.
Not surprisingly, Nvidia’s annual revenue has shot up by 682% in the past five years, echoing its staggering net income growth of 1,580%. Although Nvidia’s stock trades at a premium compared to the Nasdaq, it still feels reasonably priced against its past performance, with a current P/E ratio of 42.2 compared to a historical average of 60.3.
Now, let’s take a moment to reflect on Netflix’s beginnings. It started as a DVD rental service that shipped out movies, which revolutionized video rental and spelled doom for traditional rental stores. Fast forward to today, and Netflix is the biggest streaming service, with sales reaching $11.5 billion this past quarter—a 17% rise year-on-year. Their net income stood at $2.5 billion, equating to $5.47 per share, and projections for 2024 indicate a further sales increase of 16% to $45.1 billion.
Like Amazon, Netflix has previously experienced significant stock valuations, evidenced by its current forward P/E ratio of 43.3—far more palatable than its 10-year average of 123.5.
Of course, when comparing tech stocks to those outside the sector, none of these giants are truly “cheap.” Consider traditional automakers like Ford and General Motors, with expected P/E ratios of 12.8 and 6.8, respectively. Yet, those companies lack the growth potential we’re witnessing in tech, at least for the moment.
So, when seeking sound investments in technology, it’s essential to assess how a company’s valuation aligns with its 10-year pricing history. In this light, Amazon, Nvidia, and Netflix have become attractive options.
Before diving into Nvidia shares, it might be worth considering what others have suggested.
Our analysts have spotlighted ten stocks they see as promising buys right now, and curiously, Nvidia isn’t among them. These selections might yield noteworthy returns in the coming years.
Reflecting on past recommendations, had you invested $1,000 in Netflix when it was first suggested, you would now have a staggering $603,392. Nvidia’s investment, if made at the time of its recommendation, would have grown to over $1.2 million.
It’s worth noting that our Stock Advisor has an average return of 1,072%, far exceeding the S&P 500’s 194%. This might be a good time to explore our latest top 10 picks and engage with a community focused on retail investing.
