Many analysts on Wall Street expect to see the first $4 trillion company in 2025.
Nvidia (NVDA -0.02%) has seen its value soar amid rampant AI spending as big tech companies race to build out bigger data centers and train more advanced AI models. With big tech planning to spend even more in 2025, its strong results should continue. Its market cap climbed from $416 billion the day OpenAI released ChatGPT to $3.5 trillion as of this writing.
The only company Nvidia trails in size is Apple (AAPL 0.20%), which has long sat at or near the top of the world's most valuable companies. Apple's massive iPhone user base has supported a growing services business over the next decade, and AI could propel that services business in 2025 as it integrates more advanced capabilities into its iOS and macOS operating systems. Its market cap sits at $3.7 trillion as of this writing.
Meanwhile, Microsoft (MSFT 0.52%) is leading in AI on two fronts. An early investment in OpenAI gave it the integrations it needed to sell developers on its Azure cloud-computing platform. Azure sales have accelerated as a result, and management expects that trend to continue in 2025. Meanwhile, Microsoft's leading position in enterprise productivity software and PC operating systems gives it a huge market to sell its Copilot AI agents, which help improve accuracy and worker productivity. It has a market cap of $3.2 trillion as of this writing.
Any of the above could become the first $4 trillion company in 2025. But one company could leapfrog them on the path to $5 trillion by the end of the decade.
Image source: Getty Images.
One of the biggest AI investors in the world
The big reason for all of the excitement around AI is its ability to transform multiple industries. And one company has its hand in several of those industries: Amazon (AMZN 0.01%). That's why it could be the first company to reach a $5 trillion valuation.
Amazon is one of the biggest investors in AI. Management said it expected to spend $75 billion on capital expenditures in 2024 during its third-quarter earnings call in September. The majority of that spend will go toward its cloud-computing business, Amazon Web Services (AWS), and other technology infrastructure. Some will go toward the continued build-out of its logistics network.
Amazon's spending is absolutely massive, but it's proven to be well worth the price. Even while investing more than any other big tech company, it's generating record amounts of free cash flow. Free cash flow climbed to $47.7 billion over the trailing 12 months in Q3, more than doubling year over year.
The factors driving incredible growth
Those strong financial results are driven by Amazon's diverse operations. AWS has been a strong driving force. AWS sales accelerated in 2024, increasing 19% year over year in Q3. Moreover, AWS now has substantial scale, which shows up in operating income growth of 49% in Q3.
AWS growth is powered by Amazon's support for advanced AI development across multiple foundation models. It continues to work on more efficient, custom-built AI accelerators for training and inference, which gives its customers lower-cost options compared to Nvidia's chips.
Meanwhile, the core of Amazon has always been its e-commerce business. Amazon continues to grow its share of e-commerce year after year despite strong competition from big box retailers improving their online operations and ultracheap alternatives like Temu and Shein. The main reason Amazon has proved so successful at defending and expanding its lead is its Prime membership.
Prime subscriptions give customers free one-day shipping on millions of items on Amazon's marketplace along with various other benefits, including Prime Instant Video. The growth of Prime is a virtuous cycle whereby more members attract more merchants offering a wider variety of goods, in turn attracting more Prime members. Amazon's subscription services revenue continues to climb at a double-digit pace despite its high penetration rate among consumers.
Amazon isn't just standing by and letting the flywheel spin. It's actively pushing. It overhauled its logistics operations in 2023 to focus on multiple regions throughout the United States. It uses advanced algorithms that predict demand and monitor in-stock levels to ensure items remain in stock across each region. The new regionalized network forms the foundation of a burgeoning logistics services business as well.
Finally, Amazon's strong position in e-commerce has helped it build a massive advertising business. Ad sales totaled $53.6 billion over the trailing 12 months. Amazon should be able to sustain that pace as it expands video advertising (all Prime memberships include ad-supported streaming by default). Generative AI has the potential to supercharge ad sales on Amazon, especially considering Amazon's scale and data, which can fuel iterative testing for ad campaigns, ensuring better conversions for merchants.
The path to $5 trillion
Amazon's business is operated with one key metric in mind: long-term free-cash-flow generation. To that end, it's been a wild success. As mentioned, free cash flow totaled $47.7 billion over the last 12 months. That's up from about $1 billion 10 years ago.
Over the next five years, free cash flow could climb even higher. AWS, fueled by the growth of AI, is showing strong improvements in operating income. Despite the massive spending to build out new data centers, develop its own chips, and attract new customers with improvements to the platform, growth is outpacing the increased spending.
Moreover, Amazon is currently undergoing a massive investment cycle. The $75 billion in expected 2024 capital expenditures is a new record for the company. It's likely to increase further in 2025. But eventually that spending will plateau. At that point, Amazon will reap what it's sown across AWS, its logistics network, and its e-commerce business (which fuels its advertising business). That cycle has played out multiple times for Amazon over the last 30 years.
Historically, Amazon has traded around 50-times free cash flow. At that multiple, it would be worth $5 trillion once it produces $100 billion in free cash flow. That may happen sooner than investors expect given the strong growth in free cash flow looks poised to continue soaring through the end of the decade.
