The Nasdaq’s historical performance following presidential elections suggests a potential surge in 2025. Coupled with Wall Street’s continued investment in AI, this presents a compelling opportunity for investors. Two companies, Advanced Micro Devices (AMD) and Amazon (AMZN), are particularly well-positioned to capitalize on this convergence of favorable market conditions and technological advancement. This analysis delves into the reasons behind their promising outlook.
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Advanced Micro Devices: A Diversified Chipmaker Powering AI
Despite a 13% dip in share value this year, AMD stands as a significant player in the AI hardware landscape. Overlooked amidst the generative AI frenzy, AMD offers a compelling alternative to Nvidia, boasting a diversified business model and attractive valuation.
AMD’s Q3 2024 revenue saw a 17% year-over-year increase, reaching $6.8 billion. However, the headline figure masks the exceptional performance of its data center segment, which surged by an impressive 122% to $3.5 billion. This growth is fueled by robust sales of advanced graphics processing units (GPUs) crucial for AI algorithm training and execution. AMD’s strategic focus on developing cutting-edge chips, such as the Instinct MI325X series designed to rival Nvidia’s Blackwell, signals its commitment to sustained data center expansion.
A key differentiator for AMD is its diversified revenue stream. With 51% of revenue originating from data center sales, AMD is less reliant on this single segment compared to Nvidia, whose data center sales constitute approximately 88% of its Q3 revenue. While this broader business model might have contributed to slower short-term growth, it enhances AMD’s resilience against potential industry slowdowns. Furthermore, AMD’s forward price-to-earnings (P/E) ratio of 25 presents a more appealing valuation compared to Nvidia’s 31.
Amazon: A Diversified Tech Giant with a Strategic Foothold in AI
Amazon’s diversification extends beyond the tech hardware sector, encompassing e-commerce, cloud computing, and AI infrastructure. CEO Andy Jassy’s strategic shift from aggressive growth to sustainable profitability, coupled with cost-cutting measures, positions the company for long-term success and enhanced shareholder value.
Q3 2024 results showcase the effectiveness of this strategy. While revenue grew by 11% year-over-year to $158.9 billion, operating income soared by 64% to $17.4 billion. Amazon Web Services (AWS), the company’s cloud computing arm, remains a pivotal contributor to profitability, generating $10.4 billion in operating income with significant growth potential.
AWS provides Amazon with strategic exposure to the foundational elements of the AI revolution. By offering Nvidia GPU computing power to AI startups, Amazon benefits from the industry’s expansion while mitigating the risks associated with direct competition in the more speculative AI software domain. Additionally, Amazon’s proprietary AI chips, Trainum and Inferentia, offer customers cost-effective solutions for specific workloads and reduce reliance on external suppliers like Nvidia.
Investing in the Future of AI: A Prudent Approach
The generative AI boom has generated substantial wealth since the launch of ChatGPT in late 2022, and this momentum is likely to persist in 2025. However, investors should approach this sector with cautious optimism, acknowledging the inherent uncertainties surrounding the duration of elevated spending on AI research and hardware.
AMD and Amazon present compelling investment opportunities for the long term. Their involvement in the essential infrastructure of the AI ecosystem, combined with diversified business models, offers a balanced approach to participating in the AI revolution while mitigating potential risks. By focusing on the “picks and shovels” of this transformative technology, these companies are well-positioned for sustained growth in the evolving AI landscape.
