Morgan Stanley Sees Amazon Stock Price Reaching $500 Amid AWS Growth

Morgan Stanley has revised its price target for Amazon (AMZN.US) to $335 per share, representing a 28% increase from its latest closing price. This upward revision is based on the firm's expectation that AWS cloud business will reach $1 trillion in annual revenue and sustain profit margins consistent with its historical levels.

The report highlights the significance of Amazon's management revising their previous forecast of hundreds of billions of dollars in AWS revenue to a more ambitious goal of one trillion dollars. This upward revision is driven by the increasing demand for AI infrastructure, which has led to accelerated growth in AWS revenue.

Morgan Stanley believes that Amazon can rapidly deploy sufficient computing capacity to meet the growing demand, with the company planning to expand its computing capacity by an additional 6 gigawatts (GW) this year and 8 GW next year. The report also notes that Amazon's capital expenditures have surged to $220 billion, with most of the additional spending earmarked for building AI infrastructure.

If AWS reaches $1 trillion in revenue and sustains profit margins consistent with its historical levels, Morgan Stanley estimates that Amazon's stock price could reach $500 per share by the end of 2027. The report also acknowledges potential risks, including pressure on free cash flow due to increased spending on AI infrastructure.