Is Amazon's stock a better bet than Nvidia's? This analyst makes the case.
By Emily Bary
D.A. Davidson says Amazon's stock carries unappreciated data-center opportunity - and a few more perks
Amazon.com Inc. can be a play on the artificial-intelligence chip craze alongside the more obvious players, and that's one reason a D.A. Davidson analyst thinks it has upside.
"Importantly, we believe Amazon will be vertically integrating with its own semiconductors creating a significant long-term price advantage," D.A. Davidson's Gil Luria wrote in a Wednesday note to clients that cheered Amazon's (AMZN) data-center opportunity.
"While we continue to believe Amazon will buy as many [Nvidia graphics processing units] as it can this year, longer-term the reliance on its own chips will create the advantage," he continued.
See also: Nvidia's stock enters a correction. Here's where the other Magnificent Seven stocks stand.
In Luria's view, Wall Street is giving Microsoft Corp.'s (MSFT) Azure cloud-computing business all the attention when it comes to generative AI opportunities in the cloud. Meanwhile, investors seem to be discounting Amazon's ability to catch up with its Amazon Web Services product.
"The breakneck pace of innovation towards smaller models and custom chips positions AWS to increase its ability to facilitate GenAI applications for its market-leading installed base of customers," he wrote. "While many AWS customers are currently running their GenAI workloads on Azure, we believe at least some of them would rather add new workloads to their existing hyperscaler if they had an equivalent offering."
Don't miss: Amazon scores record valuation for the first time since 2021
Amazon is reportedly pouring $150 billion into data-center infrastructure in the next 15 years - a sum that no one but Microsoft will even be close to, from his perspective.
Luria has a buy rating on Amazon shares, and he upped his price target to $235 from $200 in his latest note. In contrast, he has a neutral stance on Nvidia's stock.
"The question is simple: would you rather own a $100bn revenue cyclical hardware business or $100bn revenue hyperscaler (with an advertising and retail business thrown in as a sweetener)?" Luria asked.
He noted that Amazon's retail business looks poised to boost its profit profile as capital spending on distribution centers moderates. That moderation can help the company more comfortably spend on data-center capital expenses.
Read: As Amazon's stock hovers near a record, its bonds are also looking attractive
-Emily Bary
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04-10-24 1426ET
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