The Newest Dow Growth Stocks Nvidia and Amazon Crushed the S&P 500 in 2024, but Which Is the Best Buy for 2025?

The storied Dow Jones Industrial Average (^DJI -0.28%) is one of the oldest and most reputable stock market indexes. The 30 Dow components are industry-leading blue chip stocks representing their respective stock market sectors. But the Dow has undergone major transformations over the last five years.

The two latest changes came this year, with Amazon (AMZN 2.94%)replacing Walgreens Boots Alliance in February and Nvidia (NVDA -1.81%) replacing Intel in November.

Amazon and Nvidia wasted no time proving their value in modernizing the Dow, with both components outperforming the S&P 500 (^GSPC 0.25%) and Dow indexes year to date. But investors care more about where a company is going than where it has been.

Here's why Nvidia stands out as a better buy than Amazon for 2025, and some factors to consider when buying leading growth stocks at all-time highs.

Succeeding together

Before getting too far into our discussion, it's worth mentioning that Amazon's cloud computing arm, Amazon Web Services (AWS), is a major customer of Nvidia. So there's certainly a scenario where both companies thrive and post market-beating gains, or slowdowns at AWS trickle down to Nvidia.

On Dec. 3, Nvidia announced that its latest tech, including its Blackwell architecture for generative artificial intelligence (AI), was coming to AWS. A new computing platform available through AWS Marketplace Private Offers will allow enterprises to build AI models with the support of Nvidia experts. AWS has developed liquid-to-chip cooling across its data centers with a new solution that offers air- and liquid-cooling capabilities for powerful AI supercomputer systems like the Nvidia GB200 NVL72.

Nvidia is the undisputed leader in chips for hyperscalers, and AWS is the leading hyperscaler -- commanding roughly the same market share as Microsoft Cloud and Alphabet-owned Google Cloud combined. According to a Nov. 1 report from Synergy Research Group, AWS holds a 31% market share over the cloud market compared to 20% for Microsoft and 13% for Google.

However, AWS doesn't have nearly the dominance in cloud as Nvidia does in chips for data centers.

The better business model

Over its history, Amazon has been a remarkably flexible company, branching into different end markets and enduring several periods of economic uncertainty. The company's network effects, leading cloud position, growing e-commerce business, and combination of diversification and disruption are valid reasons to buy Amazon stock like there's no tomorrow.

AWS' operating income comprised 62% of Amazon's total operating income for the nine months ending Sept. 30, 2024. Compared to the same period last year, AWS revenue increased by $12.22 billion, but its operating expenses only increased by $479 million, so nearly all of that revenue gain translated to operating income growth. However, without the contribution from AWS, Amazon simply isn't growing very quickly.

AWS has expanded Amazon far beyond e-commerce and made it a better business, but not in the same way that chips for data centers have been a game changer for Nvidia.

In Nvidia's recent quarter, which was third-quarter fiscal 2025 (ended Oct. 27), Nvidia reported $30.77 billion in revenue consisting of $27.64 billion from compute and $3.13 billion from networking. Operating income from the compute and networking segment came in at $22.081 billion -- giving the segment a ridiculously high operating margin of 71.8%. For context, Amazon -- as a whole -- booked $17.41 billion in operating income in its recent quarter. And AWS' margins aren't nearly as high as Nvidia's.

Nvidia's gaming and AI PC, professional visualization, and automotive and robotics segments combined for $4.22 billion in revenue. The graphics segment earned just $1.502 billion in operating income.

It's hard to believe, but five years ago, Nvidia's data center business was smaller than its graphics segment. Whereas today, data center makes up over 85% of Nvidia's revenue and over 90% of its operating income. In the quarter, Nvidia said that cloud service providers made up around 50% of its data center revenue, while the remainder consisted of consumer internet and enterprise companies. These customers (like AWS) are some of the highest-quality customers in the world. They are the exact kind of customers Nvidia wants because they have the financial means to invest through market cycles.

Nvidia went from a chip company for graphics to a chip company for data centers. In contrast, Amazon still does many different things, but the best part of its business is AWS. Nvidia has better margins and more growth potential. It has a more commanding market share. And it is a more pure-play investment thesis on data center growth, whereas Amazon's investment thesis crosses more industries and is more complex.

Nvidia has a fair valuation

Nvidia's biggest risks are a slowdown in AI capital spending or competition coming along and eroding margins. But so far, that hasn't happened. Nvidia has so far been an earnings-driven story. In fact, earnings growth has outpaced the growth in the stock price.

NVDA data by YCharts

Eventually, Nvidia's growth will probably slow down. But until that happens, it's hard to call Nvidia a bubble because the business is delivering real, bottom-line results. This isn't a company that has the potential to do amazing things in the future; rather, it is delivering unbelievable results right now.

Because Nvidia has been an earnings-driven story, its valuation remains reasonable. Nvidia has a higher price-to-earnings (P/E) ratio and forward P/E ratio than Amazon. But as you can see in the chart, the gap between the valuations of both companies could narrow if Nvidia continues to grow its earnings at a faster pace.

NVDA PE Ratio (Forward) data by YCharts

Only buy Nvidia if you have a long-term mindset

Nvidia and Amazon are excellent companies that stand to benefit from higher AI spending. However, competition or a cyclical slowdown could quickly make both companies look more expensive, leading to a steep sell-off.

When buying industry-leading growth stocks at all-time highs, it's important to understand that the factors contributing to the record highs could be the same ones leading to a sell-off. Wall Street will waste no time downgrading a stock based solely on its near-term growth prospects. However, the good news is that individual investors don't have to get caught up in the noise and, instead, can focus on the long-term investment thesis.

Investors interested in Nvidia should continue to monitor its pace of technological advancements and ability to monetize those improvements. Currently, Nvidia is out-innovating its competition, so it can still charge top dollar for its products. Furthermore, its customers are doing so well that they can afford to pay pretty much whatever Nvidia is charging.

Nvidia is at the top of its game, and there has yet to be any concrete reason to believe it will change. But if the cycle does turn, there will be signs from Nvidia's top customers like AWS and Meta Platforms. The stock price continues to be driven by earnings growth, which should continue next year.

In sum, Nvidia has a simpler and more effective business model than Amazon and much better growth, making it the better buy now.