Nvidia vs. Amazon: Trade War Winner?
Question: Why would you pay 30 times earnings for Amazon stock (NASDAQ: AMZN) when you could buy Nvidia stock for 33 times earnings? You wouldn’t, especially when you consider three simple facts:
- Growth: Nvidia’s revenue is growing at a much faster rate, over 80% annually in the last three years, while Amazon’s revenue growth is around 11%.
- Margins: Nvidia’s profit margins are above 60%, meaning a larger portion of their revenue growth translates into profits for shareholders. In contrast, Amazon’s operating margins are around 11%. So even if Amazon grows, a smaller percentage of that growth becomes actual profit.
- Tariffs: Nvidia’s revenue is likely to be less affected by international tariffs compared to Amazon. The latter has a much larger global e-commerce business, making it directly exposed to trade issues. Plus, their international operations are complex, with a lot of supply chain risk involved. Nvidia, while also global, might have a different level of direct tariff exposure.
Is Nvidia A Safe Bet?
While the term “safe haven” might come to mind for some, Nvidia’s past performance during market shocks suggests otherwise. For context, here’s how Nvidia has behaved in past shocks. During the 2022 inflation shock, NVDA dropped over 65%. In 2020, amid pandemic uncertainty, the stock fell over 35%. Most dramatically, during the 2008/2009 financial crisis, NVDA experienced an 85% collapse in value. So, NVDA stock is not exactly a safe stock. Our dashboard How Low Can NVIDIA Stock Go In A Market Crash? has a detailed analysis of how the stock performed during and after previous market crashes.
However, it’s important to note that Nvidia’s stock has already experienced a significant correction, falling from a high of close $150 at the beginning of the year to below $100 now. For investors seeking a potentially more stable and high-performing alternative, consider the Trefis High Quality portfolio. This strategy has outperformed the market with over 75% returns since its inception, as demonstrated by its HQ performance metrics.
Image by Nana Dua from Pixabay
Nvidia: The AI Arms Provider
If you believe in the long-term growth and proliferation of Artificial Intelligence, regardless of tariff implications, Nvidia could be a compelling long-term investment at its current valuation. This is largely because Nvidia acts as an “arms provider” in the AI race. By investing in Nvidia, you’re not betting on any single company like OpenAI, Google, or Amazon to win the AI battle. Instead, you’re investing in the underlying infrastructure that all these major players rely on. The AI race is still in its early stages, and companies are investing heavily. For instance, Google’s technology infrastructure capital expenditure is around $75 billion, illustrating the scale of this investment.
Potential Risks to Consider
However, Nvidia is not without its risks. One potential downside is that Nvidia’s earnings might disappoint, or its growth could slow from the current 50% to around 30% in the near term as companies prioritize cash conservation. Additionally, Nvidia’s customers might shift their focus toward developing more efficient AI models, potentially reducing their need for ever-increasing quantities of chips. Furthermore, unforeseen and currently unimaginable events could negatively impact the stock. Given these risks, investors should be prepared for potential significant downside, perhaps as much as 40%. Selling during such a downturn would likely be detrimental.
Long-Term Perspective
Despite these potential challenges, for long-term investors with a 3-5 year horizon who are comfortable with volatility, Nvidia at its current levels could represent an interesting entry point into the burgeoning AI market. For those seeking strategies to navigate market downturns and potentially capitalize on them, exploring options like the Trefis Reinforced Value (RV) Portfolio, which has outperformed its all-cap stocks benchmark (combination of the S&P 500, S&P mid-cap, and Russell 2000 benchmark indices) to produce strong returns for investors, or consulting a financial advisor with experience in bear markets could be beneficial. Remember, significant wealth can be generated in the market by those who maintain a calm and strategic approach during periods of volatility.
| Returns | Apr 2025 MTD [1] |
2025 YTD [1] |
2017-25 Total [2] |
| AMZN Return | -8% | -20% | 367% |
| NVDA Return | -10% | -27% | 3614% |
| S&P 500 Return | -10% | -14% | 126% |
| Trefis Reinforced Value Portfolio | -9% | -18% | 492% |
[1] Returns as of 4/8/2025
[2] Cumulative total returns since the end of 2016
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