Five major catalysts could drive the stock price up 40%! Morgan Stanley names Amazon.com, Inc. (AMZN.US) a top pick, raises price target to $350.

On Monday, Morgan Stanley named Amazon.com, Inc. (AMZN.US) a top pick in its latest research report, raised its price target from $335 to $350, and maintained its "Overweight" rating. The firm believes that Amazon.com, Inc. could be poised for a new round of valuation re-rating as its cloud computing business AWS accelerates growth, AI infrastructure investments gradually profits, and AI agents and Siasun Robot&Automation technology create new business opportunities. Based on the October 16 closing price of $250, the new price target implies about 40% potential upside for the stock. Morgan Stanley analyst Brian Nowak noted that in a market environment where leaders and laggards in artificial intelligence are constantly shifting, Amazon.com, Inc. has multiple growth DRIVEs that have not yet been fully recognized. The firm expects five major catalysts to drive Amazon.com, Inc. to continue outperforming the broader market, including accelerated AWS revenue growth, higher cloud business margins, the gradual realization of the Bedrock platform's value, AI agents driving e-commerce business development, and Siasun Robot&Automation technology improving retail business profitability. AWS Growth Potential Underestimated; Revenue Could Reach $373.6 Billion in 2028 Morgan Stanley believes that AWS remains Amazon.com, Inc.'s most important growth engine over the next few years, and that its revenue scale and profit potential have not yet been fully reflected by the market. Based on the latest information disclosed by NVIDIA Corporation (NVDA.US), the firm noted that AWS is expected to purchase or deploy approximately 2 million NVIDIA Corporation GPUs in 2027-2028, about 1 million more than Morgan Stanley previously forecast. The firm therefore raised its forecast for AWS's total NVIDIA Corporation GPU purchases and deployments during 2026-2028 to approximately 3 million units. As GPU deployment scales up, Morgan Stanley expects AWS's computing capacity to increase significantly. The additional GPU investment is expected to bring about 2 gigawatts and 1 gigawatt of additional computing capacity in 2027 and 2028, respectively, supporting cloud computing revenue growth. Based on the above changes, the firm raised its AWS revenue forecasts for 2027 and 2028 by 5% and 10%, respectively, and expects year-over-year revenue growth of 47% and 42%, above its previous forecasts of 41% and 37%. Under the latest forecasts, AWS revenue is expected to grow from $178.3 billion in 2026 to $262.3 billion in 2027, and further to $373.6 billion in 2028. Morgan Stanley emphasized that AI computing supply remains tight, and new computing capacity is expected to quickly revenue; therefore, even after the substantial upward revisions, its AWS growth expectations may still be conservative. Cloud Business Margins to Continue Improving; AWS Could Contribute Nearly 70% of Amazon.com, Inc.'s Operating Profit in 2028 In addition to revenue growth, Morgan Stanley is also bullish on continued improvement in AWS's profitability. The firm expects AWS's incremental operating margins to reach 47% and 49% in 2027 and 2028, respectively, driving overall GAAP operating margin to 42% and 44%, each about 2 percentage points higher than previously forecast. Meanwhile, AWS operating profit is expected to grow from approximately $69.8 billion in 2026 to $109.6 billion in 2027, and to reach approximately $164.5 billion in 2028. By then, AWS is expected to contribute about 67% of Amazon.com, Inc.'s total operating profit, further consolidating its position as the group's main source of profit. Morgan Stanley noted that AWS is expected to become a "Rule of 90" company in 2027-2028, meaning the sum of its revenue growth rate and operating margin reaches about 90%. This means AWS can not only maintain rapid growth but also achieve a high level of profitability at the same time. However, AI infrastructure expansion also means capital expenditures will increase significantly. Considering additional GPU procurement needs, Morgan Stanley raised its overall capital expenditure forecasts for Amazon.com, Inc. in 2027 and 2028 to approximately $355 billion and $365 billion, respectively, about 9% and 4% higher than previous forecasts. The firm believes that although capital expenditures are large, the revenue and profit growth brought by new computing capacity is expected to support a higher corporate valuation over the medium to long term. Bedrock Platform Value Could Be Re-Rated; AI Agents May Become a New E-commerce Growth Driver Morgan Stanley believes that the strategic value of Amazon.com, Inc.'s generative AI platform Bedrock is also undervalued by the market. As the AI industry gradually shifts from model training to inference and application deployment, enterprises need infrastructure platforms that can integrate different AI models, manage inference tasks, and support application development. Bedrock is expected to play an important role in this process. The firm believes that if Amazon.com, Inc. can further demonstrate to investors Bedrock's role in driving enterprise adoption of generative AI, it would help the market reassess AWS's long-term growth potential and drive an increase in Amazon.com, Inc.'s valuation multiple. At the same time, Morgan Stanley believes that Amazon.com, Inc. is also an important beneficiary of AI agent commercialization. As AI agents gradually gain the ability to autonomously search for products, compare prices, and complete shopping tasks, the user entry points and transaction models of the e-commerce industry may change. Although the market is concerned that AI agents may weaken the traffic advantages of traditional e-commerce platforms, Morgan Stanley believes that Amazon.com, Inc. still has hard-to-replace competitive advantages with its leading logistics and delivery network, large Prime membership base, and mature third-party seller ecosystem. The firm expects that Amazon.com, Inc. may in the future cooperate with Meta's (META.US) AI agent Muse, using its own logistics and retail infrastructure to support AI shopping experiences. However, the report emphasized that whether the two sides will cooperate and the specific commercial arrangements have not yet been determined. Morgan Stanley noted that AI agent e-commerce still faces business model issues such as advertising revenue, platform commissions, and control over user experience, but Amazon.com, Inc. is expected to continue to monetize through transaction revenue sharing, logistics service fees, and third-party seller services. The firm believes that the upcoming holiday shopping season may be an important window to observe the AI agent e-commerce business model. Siasun Robot&Automation Technology Could Unlock Billions of Dollars in Cost Savings On the retail business side, Morgan Stanley believes that Siasun Robot&Automation technology could become an important catalyst for Amazon.com, Inc.'s next stage of profitability improvement. The firm's previous research showed that for every 10% of Amazon.com, Inc.'s global merchandise volume shifted to fulfillment centers equipped with Siasun Robot&Automation technology, approximately $2 billion to $4 billion in sustained annual cost savings could be generated. As Siasun Robot&Automation technology continues to advance, Morgan Stanley believes that Amazon.com, Inc.'s per-item handling efficiency could improve faster than previously expected, so the actual savings potential may be even greater. Amazon.com, Inc. management said on its Q2 2026 earnings call that the company is expanding deployment of Siasun Robot&Automation and automation technology and expects to more than double the number of robotic arms such as Cardinal and Sparrow in 2026. Morgan Stanley believes that as newly built automated fulfillment centers begin operations and existing facilities gradually complete Siasun Robot&Automation technology upgrades, 2027 is expected to be an important year for Amazon.com, Inc. to demonstrate the commercial value of "physical AI." The efficiency gains brought by Siasun Robot&Automation technology can not only reduce fulfillment costs but may also free up more funds for business reinvestment or directly profit growth. 2028 EPS Forecast Raised 7%; Valuation Remains Attractive Based on higher AWS revenue and profit forecasts, Morgan Stanley raised its 2028 GAAP earnings per share forecast for Amazon.com, Inc. by about 7% to $16.56 and raised its price target to $350. The price target corresponds to about 21 times 2028 expected earnings. According to the firm's valuation model, Amazon.com, Inc.'s current share price corresponds to only about 15 times 2028 expected earnings, with a growth-adjusted price/earnings-to-growth ratio (PEG) of about 0.3 times, a roughly 60% discount to the median of about 0.9 times for large cloud computing peers. Even if the stock rises to $350, Amazon.com, Inc.'s PEG would still be only about 0.5 times, about 50% below the peer median. Morgan Stanley also provided three valuation scenarios: in a bull case, Amazon.com, Inc. shares could reach $410; the base case price target is $350; and in a bear case, the stock could fall to $220. The firm believes that relative to potential downside, Amazon.com, Inc.'s current upside opportunity is more prominent, with a risk-reward ratio of about 3 to 1. However, Morgan Stanley also noted that Amazon.com, Inc. still faces risks such as continued increases in capital expenditures, rising logistics costs, and AWS growth or margins falling short of expectations. The firm's latest forecasts show that due to large-scale investment, Amazon.com, Inc.'s free cash flow may still be negative $89.4 billion and negative $19.4 billion in 2027 and 2028, respectively. Nevertheless, the firm believes that AWS's rapid growth and margin expansion, Bedrock's strategic value, the development of AI agent e-commerce, and the long-term cost advantages brought by Siasun Robot&Automation technology will together constitute the five major catalysts driving Amazon.com, Inc.'s share price higher, making it an attractive investment among current large-cap technology stocks.