Five catalysts are expected to drive up the stock price by 40%! Damo raised the target price of Amazon (AMZN.US) as a preferred stock to $350

The Zhitong Finance App learned that on Monday, in the latest research report, Morgan Stanley listed Amazon (AMZN.US) as the preferred stock and raised the target price from $335 to $350, maintaining an “gain” rating. The bank believes that as the cloud computing business AWS accelerates, AI infrastructure investment gradually turns into profits, and AI agents and robotics bring new business opportunities, Amazon is expected to usher in a new round of valuation and revaluation. Based on the closing price of $250 on October 16, the new target price means that the stock still has about 40% potential to rise.

Morgan Stanley analyst Brian Nowak pointed out that in a changing market environment where leaders and laggards in the field of artificial intelligence are constantly changing, Amazon has a number of growth drivers that have not been fully recognized. The bank anticipates that in the future, five major catalysts will drive Amazon to continue to outperform the market, including the accelerated growth of AWS revenue, increased profit margins in the cloud business, the gradual emergence of the value of the Bedrock platform, AI agents driving e-commerce business development, and robotics technology to improve the profitability of the retail business.

AWS's growth potential is underestimated. 2028 revenue is expected to reach US$373.6 billion

Morgan Stanley believes that AWS will still be Amazon's most important growth engine in the next few years, and its revenue scale and profit potential have yet to be fully reflected in the market. According to the latest information disclosed by Nvidia (NVDA.US), AWS is expected to purchase or deploy about 2 million Nvidia GPUs from 2027 to 2028, which is about 1 million more than Morgan Stanley's previous forecast. As a result, the bank raised the forecast for the total number of Nvidia GPUs that AWS will purchase and deploy between 2026 and 2028 to around 3 million.

As GPU deployments expand, Morgan Stanley expects AWS's computing capacity to increase significantly. Investments in additional GPUs are expected to provide approximately 2 gigawatts and 1 gigawatt of additional computing capacity in 2027 and 2028, respectively, to support cloud computing revenue growth.

Based on these changes, the bank raised AWS's 2027 and 2028 revenue forecasts by 5% and 10%, respectively, and its revenue growth rate is expected to reach 47% and 42% year over year, respectively, higher than the 41% and 37% forecast previously.

According to the latest forecast, AWS revenue will grow from US$178.3 billion in 2026 to US$262.3 billion in 2027, and further reach US$373.6 billion in 2028.

Morgan Stanley stressed that the current supply of AI computing power is still tight, and new computing capacity is expected to be quickly converted into revenue, so even after a sharp increase in the forecast, its growth expectations for AWS may still be conservative.

The profit margin of the cloud business continues to rise and is expected to contribute nearly 70% of Amazon's operating profit in 2028

In addition to revenue growth, Morgan Stanley is also optimistic that AWS's profitability will continue to improve. The bank expects AWS's incremental operating margins to reach 47% and 49% respectively in 2027 and 2028, driving the overall GAAP operating margin to 42% and 44%, which is about 2 percentage points higher than previously forecast.

Meanwhile, AWS's operating profit is expected to grow from about 69.8 billion US dollars in 2026 to 109.6 billion US dollars in 2027, and reach about 164.5 billion US dollars in 2028. At that time, AWS is expected to contribute approximately 67% of Amazon's overall operating profit, further strengthening its position as the Group's main source of profit.

According to Morgan Stanley, AWS is expected to become an enterprise that complies with the “Rule of 90” (Rule of 90) from 2027 to 2028, that is, the sum of revenue growth rate and operating profit margin will reach about 90%. This means that AWS can not only maintain rapid growth, but also achieve a high level of profitability.

However, the expansion of AI infrastructure will also mean a significant increase in capital expenditure.

Taking into account the demand for additional GPUs, Morgan Stanley raised Amazon's overall capital expenditure forecasts for 2027 and 2028 to approximately US$355 billion and US$365 billion, respectively, up about 9% and 4% from previous forecasts, respectively. The bank believes that although capital expenditure is huge, the increase in revenue and profit brought about by additional computing power is expected to support higher corporate valuations in the medium to long term.

The value of the Bedrock platform is expected to be revalued as an AI agent or become a new growth point for e-commerce

Morgan Stanley believes that the strategic value of Bedrock, a generative AI platform owned by Amazon, is also underestimated 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 bank believes that if Amazon can further show investors Bedrock's role in driving enterprises to adopt generative AI, it will help the market re-evaluate the long-term growth potential of AWS and drive Amazon's valuation multiples.

At the same time, Morgan Stanley believes that Amazon is also an important beneficiary of the commercialization of AI smart devices. As AI agents gradually have the ability to independently search for products, compare prices, and complete shopping tasks, user entry and transaction models in the e-commerce industry may change.

Despite market concerns that AI agents may weaken the traffic advantage of traditional e-commerce platforms, Morgan Stanley believes that Amazon has a leading logistics distribution network, a large Prime membership base, and a mature ecosystem of third-party merchants, and still has a competitive advantage that is difficult to replace.

The bank anticipates that in the future, Amazon may cooperate with Muse, an AI agent under Meta (META.US), to support the AI shopping experience using its own logistics and retail infrastructure. However, the research report emphasizes that whether the two sides will cooperate and the specific commercial arrangements have not yet been determined.

Morgan Stanley pointed out that AI smart e-commerce still faces business model problems such as advertising revenue, platform allocation, and user experience control, but Amazon is expected to continue to achieve commercial monetization through transaction sharing, logistics service charges, and third-party merchant services. The bank believes that the upcoming holiday shopping season may become an important window for observing AI smart e-commerce business models.

Robotics could unlock billions of dollars in cost savings

In terms of retail business, Morgan Stanley believes that robotics may become an important catalyst for Amazon's next phase of profit improvement.

The bank's previous research showed that every 10% of Amazon's global product processing volume transferred to fulfillment centers equipped with robotic technology may generate ongoing cost savings of about 2 billion to 4 billion US dollars every year.

As robotics technology continues to advance, Morgan Stanley believes that Amazon's processing efficiency for each item may improve faster than previously anticipated, so the actual space savings may even be greater.

Amazon management said during the 2026 second quarter earnings conference call that the company is expanding the deployment of robotics 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 2027 is expected to be an important year for Amazon to demonstrate the commercial value of “physical AI” as a new automated fulfillment center is put into operation and the robotics transformation of existing facilities is gradually completed.

The efficiency improvements brought about by robotics technology can not only reduce fulfillment costs, but may also free up more capital for business reinvestment, or directly translate into profit growth.

2028 earnings per share forecast raised by 7%, and valuations are still attractive

Based on the increase in AWS revenue and profit forecasts, Morgan Stanley raised Amazon's 2028 GAAP earnings per share forecast by about 7% to $16.56, and raised the target price to $350. The target price corresponds to approximately 21 times the projected price-earnings ratio in 2028.

According to the bank's valuation model, Amazon's current stock price is only about 15 times the expected price-earnings ratio for 2028. The growth-adjusted price-earnings ratio is about 0.3 times the profit growth ratio (PEG), and the median of about 0.9 times that of larger cloud computing peers has a discount of about 60%. Even if the stock price rises to $350, Amazon's PEG is still only about 0.5 times lower than its peer median.

Morgan Stanley also presented three valuation scenarios: under an optimistic scenario, Amazon's stock price is expected to reach 410 US dollars; in the benchmark scenario, the target price is 350 US dollars; under a pessimistic scenario, it may fall to 220 US dollars. The bank believes that compared to the potential downside, Amazon's current upward opportunity is more prominent, and the risk-reward ratio is about 3 to 1.

However, Morgan Stanley also pointed out that in the future, Amazon will still face risks such as continued increase in capital expenditure, rising logistics costs, and AWS growth or profit margins falling short of expectations. The bank's latest forecast shows that due to large-scale investments, Amazon's free cash flow in 2027 and 2028 may still be negative US$89.4 billion and negative US$19.4 billion, respectively.

Despite this, the bank believes that the rapid growth and profit margin expansion of AWS, the strategic value of Bedrock, the development of AI smart e-commerce, and the long-term cost advantages brought about by robotics technology will all form the five major catalysts driving the rise in Amazon's stock price, making it an attractive investment target for current major technology stocks.