Nvidia Corporation (NASDAQ:NVDA) and Amazon.com, Inc. (NASDAQ:AMZN) were at the center of interesting news coverage last week after a report from the Financial Times claimed that Amazon was interested in creating a shell company for its NVIDIA AI GPUs. The shell company would remove the GPUs from Amazon’s balance sheet and allow external investors as well, while Amazon would lease back the chips. Cramer, who is one of NVIDIA’s biggest bulls and has firmly stuck with the firm throughout 2026, discussed the report on October 2nd:
“When I saw, the Amazon Prime, they’re offering $8 billion worth of NVIDIA chips. Is that on Amazon Prime? That’s a trade, to make NVIDIA, it’s not a thing as dumping NVIDIA so much as making it asset light. It’s a sale-lease-back. It’s an important trade because it does show that there is a deeper market of NVIDIA chips, that’s the Amazon offering of 8 billion chips.
“I just thought it was a fantastic piece, because what it really says, is that. . .they spent time with Collette Kress. But I see Collette Kress, I immediately think, that’s the buyback, could be very, very good. Diversifying the customer base. . .these are meeting by the way that they take incredibly seriously. . .and the fact that Morgan Stanley obviously has gotten the rap, and it’s a very positive rap, made them really change their mind, Joseph Moore is a very powerful analyst. What you should be thinking about is can they take out the double top, can take out the 236, because what’s really made a lot of the chartists very nervous about NVIDIA is that it’s not been able to break out of the double top. This is a really important day, a gut check day for NVIDIA.”
For NVIDIA, the pricey nature of its GPU has played a key role in the debate for the firm. They have led to custom AI chips, designed and used by big tech players, including Amazon, to grow in popularity. In fact, for this one firm that designs the chips, Cramer went as far as to say that it had the highest orders than most firms except for maybe NVIDIA.
The broader debate for the AI GPU giant is simple, as it is concerned with growth. While few are concerned about the demand given the feverish hype for AI, the role that constraints such as power use by data centers can have on the firm is key. Additionally, the AI infrastructure boom has led to a historic shortage in the memory chip market to push prices higher. The higher prices impact NVIDIA’s gross margins to indicate that the newer chips from the firm might not be as profitable as their predecessors.
Numerically stated, while some, such as Barclays, believe that NVIDIA could generate a whopping $401 billion in hyperscaler revenue in 2027, the firm guided that its fiscal year 2027 gross margin could dip to range between 71% and 72%. The fiscal year 2027 will end in January 2027, and for FY28, NVIDIA expects gross margins to slightly recover to sit between 72% and 73% after escaping the proverbial ‘trough.’ At the same time, others, such as Seaport Global, have also pointed out that competition from Google’s TPU AI chips is also rising.
For Amazon, the debate also surrounds AI but concerns itself with profitability. With the firm having outlayed more than $200 billion in capital expenditure in 2024 and 2025, the growth of its AWS cloud computing business is an important narrative driver. On this front, Amazon’s second quarter earnings saw the firm post a strong 37% AWS growth and achieve a strong operating margin of 39.4% for a sharp acceleration over the year ago quarter’s 32.9%. These figures fare well for profitability as the margin exceeded the firm’s overall operating margin of 13.7%. Is Amazon part of our list of 10 Blue Chip Stocks Jim Cramer is Crazy About? Take a look!
The AWS margins come at a time when fuel inflation is biting into Amazon’s physical retail operating margins. During the quarter, North America and International operating margins sat at 7.9% and 4.1%, respectively. Naturally, with higher memory prices making the firm bump its capex to $220 billion from $200 billion, the focus is sharp on AWS and its ability to drive profitability.
Valuation wise, Amazon trades at a forward P/E ratio of 23.64 which is only slightly lower than NVIDIA’s 24.88. With the former’s 5 year forward P/E ranging between 30x to 44x, the latest value shows that after a period of high growth investment, Amazon is now settling down to become a more stable firm. Additionally, the ratio implies an earnings yield of 4.23% to approach yields of stable assets such as bonds. For NVIDIA, the latest value is also significantly lower than the 10 year average of 30x to 35x. Not to mention, the lower multiple also indicates that the firm’s profit growth is outpacing its share price growth (EPS grew by 120% annually in fiscal Q2 while the shares were up by roughly 20%). As for the hedge funds, Amazon is the favored one as 369 funds tracked by Insider Monkey had disclosed a Q2 stake compared to 285 for NVIDIA. Short interest as a percentage of float is 1.27% for NVIDIA compared to 0.85% for Amazon.
READ NEXT: Jim Cramer Draws the Line on NVIDIA in China: Why National Security Comes First and Jim Cramer Defends His Dell Stance as Investors Complain About Missing Out.
