So far, Apple's (AAPL 0.83%) efforts in artificial intelligence (AI) have underwhelmed investors, and it's fair to say that no one thinks it's taking the world by storm with this particular technology. Its Apple Intelligence initiatives are not getting nearly the buzz that competitors' products are receiving, and it seems that its other AI-related products (advanced AI chips, for example) are still in development or getting little fanfare. The market is clearly underwhelmed as Apple -- recently the most valuable company in the world -- has fallen behind Microsoft and Nvidia in market capitalization.

The next company to overtake Apple could be Amazon (AMZN -0.37%). Apple's market cap is in a slow decline and currently sits at $3 trillion, while Amazon has risen to $2.18 trillion and is in a leading position to take advantage of AI spending from both a consumer and cloud computing standpoint.

I predict Amazon stock will surpass Apple in market capitalization by the end of 2025. Here's why.

Image source: Getty Images.

Booming growth in AI spending

Amazon is betting big on AI to help its Amazon Web Services (AWS) cloud computing division. It is planning $100 billion on capital expenditures this year, mainly for AWS.

The partnership/investment in leading AI start-up Anthropic is showing signs of bearing fruit, with Anthropic's revenue growing at a blistering pace and spending a ton of money on AWS products.

Last quarter, AWS revenue grew 17% year over year to $29.3 billion, but it was constrained by supply restrictions, according to Amazon management. Over the next year, I expect revenue at AWS to accelerate as more and more cloud computing infrastructure becomes available.

Over the last 12 months, AWS generated $42 billion in operating income, which is over half of Amazon's total profit. Expect this figure to grow substantially over the next few years.

AI and e-commerce

There is another side of the Amazon empire that can use AI: online shopping. The company is employing AI to upgrade its entire vertically integrated e-commerce network. This starts with AI-enabled robots and shipping from warehouses, AI-generated advertisements for merchants, and AI-enabled shopping tools to help consumers find what they want on Amazon's infinite marketplace.

Already the dominant online shopping platform in the U.S., Amazon has the potential to further enhance its value proposition versus the competition in the years ahead. At the same time, it has a chance to greatly increase the profit margins from this segment.

Its North American retail segment generated around $25.6 billion in operating income over the last 12 months but had a profit margin of only 6.3%. Through further scaling up, third-party seller fees, advertising revenue, and the Prime subscription, the company has plenty of room to keep expanding its operating margin in the years ahead, which will help send consolidated earnings higher at the same time AI is boosting growth at AWS.

Data by YCharts; TTM = trailing 12 months.

Why Apple will be surpassed by Amazon by the end of the year

Amazon's stock will keep marching higher because of the coming earnings inflection at AWS and e-commerce. Over the last 12 months, it has generated a consolidated operating income of $72 billion. Based on the analysis laid out above, it may be on its way to generating $100 billion in earnings in 2025 or at some point in early 2026 on a trailing-12-month basis, which will propel the stock price higher.

Apple's earnings may start heading in the wrong direction. It is facing headwinds from tariffs, antitrust lawsuits, and failed hardware launches like the Vision Pro virtual reality headset. It is struggling to muster up any strategy in AI except for licensing technologies from other players. Its revenue has barely grown over the last three years, while Amazon's is soaring.

Amazon does have its own issues with tariffs, but it has a lot more flexibility to navigate the supply chain of its e-commerce marketplace compared to Apple. It can sell more American-made goods and still take the same fees from sellers, while Apple is probably in a cost-prohibitive situation were it to try making phones domestically.

Amazon also has antitrust lawsuits to contend with, but whatever way the wind blows in these dealings, it isn't expected to have a huge impact on Amazon's overall business. Online shoppers still will enjoy the infinite selection and everyday low prices delivered rapidly from Amazon's storefront. Apple's antitrust lawsuit has real potential to take a huge chunk out of its earnings power.

Amazon has many failed hardware products that burn money, but these are irrelevant to the two pillars of its business -- e-commerce and cloud computing.

Add it all up, and I think Amazon will manage to surpass Apple in market cap by the end of 2025.