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A data center is a physical location where a company stores computing infrastructure such as servers, networking equipment, and data storage solutions. Although they come in all shapes and sizes, cloud data centers have become particularly popular over the past decade. Cloud computing allows businesses to provision hardware and software services instantly without incurring large upfront costs.
Countless companies have taken advantage of their IT restructuring, but few have benefited more. Nvidia (NVDA -0.20%) and Amazon (AMZN -0.36%). Nvidia chips have become the leading data center accelerator for workloads such as artificial intelligence (AI), and Amazon is the largest provider of cloud infrastructure and platform services. Key positions in fast-growing industries boosted both stocks. Nvidia has made his 12,800% return over the past 10 years, and Amazon has made his 630% return.
Due to this significant price increase, the two companies recently split their shares.
- Nvidia: 4-1 split in July 2021.
- Amazon: 20-1 split in June 2022.
Some Wall Street analysts see big returns for shareholders in 2024. Specifically, Rosenblatt’s Hans Mosesmann has a 12-month price target for Nvidia of $1,100 per share, implying an upside of 111% from the current price. Similarly, Wedbush Securities’ Scott Devitt has a 12-month price target on Amazon of $210 per share, implying a 41% upside.
Here’s what investors need to know.
1. Nvidia
Nvidia has three main growth drivers: gaming, professional visualization, and data center business, but as the robotaxis market blossoms, the automotive division could become a big source of revenue.
Nvidia has deep roots in gaming and professional visualization. His invention of the GPU (graphics processing unit) in 1999 revolutionized computer graphics, and the company still holds over 90% market share in workstation graphics processors. But Nvidia has also added monetization opportunities by moving into software with Omniverse, a suite of applications that supports 3D design and virtual simulation. The latter is useful for training machine learning models for autonomous robots and self-driving cars.
Under the leadership of visionary CEO Jensen Huang, NVIDIA introduced the CUDA programming model in 2006, turning GPUs into general-purpose processors and moving them into data centers. This innovation laid the foundation for great success. Nvidia currently dominates the market for data center accelerators and machine learning chips. in fact, forrester research Nvidia says GPUs are synonymous with AI infrastructure.
Rosenblatt analyst Hans Mosesmann highlighted adjacent AI monetization opportunities in data center networking and software in a recent note to clients. In detail, networking sales have tripled in the past year, making it a $10 billion business. CEO Jensen Huang says the scale will get even bigger. Similarly, CFO Colette Kress said that NVIDIA is starting to see good adoption of AI software in the most recent quarter, and that management is seeing AI software as a $150 billion market opportunity. This is an encouraging update, considering that
The conclusion is: GPU sales are expected to grow 28% annually through 2030, while the AI market is expected to expand 37% annually over the same period. With this, Nvidia is expected to increase its annual revenue by 25% until the end of his 20s. Nevertheless, the current valuation of 29 times sales seems a little expensive, especially considering the three-year average is 23.5 times sales.
Investors who are comfortable with volatility can buy a small position today, as long as they are willing to hold the stock for at least five years. The triple-digit returns built into Rosenblatt’s 12-month price target are unlikely given rising valuations, but possible over a five-year time horizon.
2. Amazon
Amazon has three major growth engines: e-commerce, digital advertising, and cloud computing. The first two opportunities are interrelated. Specifically, Amazon operates the most visited online marketplace on the planet, with the platform accounting for 38.7% of retail e-commerce sales across North America and Western Europe last year, according to eMarketer. I did.
This size means Amazon is in a unique position to attract shoppers and source data from its marketplace, an advantage the company is using to build a fast-growing advertising business. In fact, Amazon recently became her third largest ad tech company in the world. And the recent decision to introduce advertising to Prime Video adds yet another opportunity.
Not surprisingly, Wedbush Securities analyst Scott Devitt is particularly bullish on Amazon’s ad tech business, recently saying, “The company has a lucrative multi-year chance to continue to capture a share of global digital ad spending.” position,” he wrote. But David is also optimistic about his cloud computing business, Amazon Web Services (AWS), and believes growth will accelerate in 2024.
Whether that happens or not, AWS is poised for long-term growth as the AI boom evolves.consulting gartner is recognized for its leadership in cloud AI developer services, and AWS recently expanded its portfolio with the launch of Bedrock and Amazon Q. The former is a development platform for generative AI applications, and the latter is a generative AI business assistant. Both could help AWS capitalize on the growing demand for generative AI software, a market that Bloomberg believes will grow 69% annually through his 2032.
The conclusion is: Retail e-commerce sales are projected to grow at 8% per year until 2030, and the ad tech and cloud computing market is projected to grow at 14% per year over the same period. Amazon will probably end up splitting the difference. That means annual sales growth could be in the 10% to 12% range by the end of the 2010s. This estimate leaves room for upside if Amazon is particularly successful with its AI ambitions.
In either case, the current valuation of 2.8x sales looks very reasonable, especially considering the three-year average is 3x sales. Patient investors should consider buying small positions today, but the key word is patience. The 41% upside built into Wedbush’s 12-month price target seems a bit too optimistic, but Amazon certainly has the potential to beat the market over the next five years.
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