Amazon Expected to Surpass Apple in Market Value by 2025

Apple’s AI initiatives fall short, creating room for Amazon to potentially surpass its market cap by the end of 2025. Amazon is investing heavily in AI for AWS and e-commerce, while Apple struggles with stagnation amid various challenges. Analysts predict Amazon’s earnings will rise significantly, making it a strong contender for global market leadership soon.

It seems that Apple (AAPL) isn’t exactly setting the tech world on fire with its artificial intelligence (AI) efforts. Investors are feeling underwhelmed by the Apple Intelligence initiatives, which aren’t drawing the attention that competitors’ innovations are. Major AI advancements, including new chips, appear to be in a developmental holding pattern, causing concern as Apple’s market cap has slipped behind both Microsoft and Nvidia, despite its recent reign as the world’s most valuable company.

On the other hand, Amazon (AMZN) is gradually closing the gap with Apple. Currently, Apple’s market cap sits at about $3 trillion, while Amazon’s has surged to $2.18 trillion. With the impressive strides Amazon is making in AI, particularly through its cloud computing service, it’s plausible that it could surpass Apple’s valuation by 2025. It’s not just a wild guess.

The heart of Amazon’s strategy revolves around pouring capital—about $100 billion this year—into its Amazon Web Services (AWS). Their collaboration with AI startup Anthropic is reaping rewards. Anthropic’s revenue is ramping up, partly due to utilizing AWS products. Last quarter, AWS revenue climbed 17% year-over-year, reaching $29.3 billion, although it faced limitations due to supply issues.

As the cloud infrastructure expands in the coming year, AWS revenue is expected to accelerate further. Just in the last year, AWS pulled in an impressive $42 billion in operating income, translating to more than half of Amazon’s total profit. This trend is likely to continue, potentially pushing these numbers even higher soon.

Then there’s Amazon’s online shopping arm. The company is harnessing AI to transform its e-commerce ecosystem from end to end. This includes employing AI-driven robots for warehouse operations and utilizing AI-generated advertisements to enhance the shopping experience. Notably, Amazon dominates online retail in the U.S., and improved AI tools could sharpen its competitive edge.

In the past year, the North American retail segment generated around $25.6 billion in operating income but only had a modest profit margin of 6.3%. However, with enhancements in operational efficiencies, increased seller fees, and ad revenue, Amazon could considerably boost its margins while simultaneously benefiting from the driving force that AI represents for AWS.

As for why I believe Amazon will overtake Apple, the earnings growth at AWS and the retail division are promising. Amazon’s consolidated operating income stands at $72 billion over the last year, and it may hit the significant milestone of $100 billion by 2025—or early 2026. That type of earnings would likely boost the stock price dramatically.

Conversely, Apple might be heading for a rough patch. The company is facing challenges like tariffs, antitrust lawsuits, and stalled hardware launches, including the much-anticipated Vision Pro headset, which seem to be underwhelming. Apple’s revenue growth has stagnated, while Amazon is experiencing a growth spurt.

Though Amazon has its own hurdles with tariffs, the flexibility of its e-commerce model gives it an advantage over Apple, especially when it comes to sourcing products. Also, while both companies face antitrust scrutiny, Amazon appears better positioned to absorb such pressures without it severely affecting its business model.

In conclusion, despite Amazon’s own failed ventures in hardware, these don’t detract from the core strengths of its e-commerce and cloud computing operations. If all these factors are considered, it’s not unreasonable to expect that Amazon may eclipse Apple’s market cap by the end of 2025.

In summary, while Apple struggles with lackluster AI efforts and various market challenges, Amazon is ramping up its AI investments and leveraging its robust e-commerce infrastructure. With projections of increased earnings in both its AWS and retail segments, Amazon seems poised to surpass Apple’s substantial market cap by the end of 2025. The outlook for Apple’s growth appears dim in contrast, potentially leaving the door open for Amazon to claim the title of the most valuable company.

Original Source: www.fool.com