AMZN Stock’s Road To $500 Could Be Led By AWS, Believes Morgan Stanley – Firm Sees AWS Revenue Reaching $1 Trillion In 8 To 10 Years

Morgan Stanley said if AWS meets its revenue forecast, it could generate roughly $500 billion in earnings before interest and tax, according to The Fly

• Morgan Stanley maintained an ‘Overweight’ rating and a $335 price target, implying a potential upside of about 28% from current levels.
• AWS Q2 revenue jumped 37% to $42.2 billion, marking its fastest growth in 18 quarters.
• AWS operating income in Q2 accounted for about 60% of Amazon’s total operating income.

Morgan Stanley believes Amazon Web Services could eventually become a $1 trillion-a-year business, paving the way for Amazon (AMZN) stock to reach $500 by the end of 2027.

The firm’s $500 target by year-end 2027 assumes AWS will hit the revenue milestone over the next 8 to 10 years. That could help Amazon generate roughly $500 billion in earnings before interest and tax (EBIT) annually, according to The Fly.

Morgan Stanley maintained an ‘Overweight’ rating and a $335 price target, implying a potential upside of about 28% from current levels.

At the time of writing, AMZN stock was down 0.8% and heading for a fifth straight session of losses.

AWS Drives Amazon’s Q2 Earnings Beat

Morgan Stanley’s forecast follows Amazon’s strong second-quarter results. AWS revenue jumped 37% to $42.2 billion, marking its fastest growth in 18 quarters and reaching a $169 billion annualized run rate. AWS operating income surged 63% to $16.6 billion, accounting for about 60% of Amazon’s total operating income.

Amazon’s quarterly revenue rose 20% to $200.6 billion, beating Wall Street’s estimates of $196.6 billion, according to Fiscal.ai. Operating income increased 43% to $27.5 billion while earnings came in at $5.75 per share, significantly above consensus estimates of $1.82 per share.

AMZN’s Increased Capex Points To AI, Data Center Spending

Amazon also raised its full-year spending forecast to $220 billion from $200 billion, with most of the money going toward AI and data centers. On a call with analysts after the results, CEO Andy Jassy said AWS could eventually generate up to $1 trillion in annual revenue, with strong cash flow and investment returns.

“We long believed AWS could become a few hundred billion-dollar revenue business and now believe it’ll be at least double that, and very possibly be a trillion-dollar annual revenue business for us in time, with very appealing accompanying free cash flow and return on invested capital,” Jassy said.

Wall Street Sees AI Demand Boosting AWS  

Earlier this month, KeyBanc said Amazon’s results reinforced its view that AWS is benefiting from stronger AI demand and expanding computing capacity, which are translating into faster revenue growth and better margins.

RBC Capital similarly said AWS’s margin improvement suggests that heavy AI investment may not hurt Amazon’s return on invested capital as much as investors previously feared.

Retail’s Take On AMZN

Retail sentiment surrounding AMZN on Stocktwits remained in bearish territory over the past 24 hours.

One user expects the stock to fall to $259 before climbing to $270.

View this Stocktwits post

AMZN shares have gained around 15% so far this year, outperforming the Roundhill Magnificent Seven ETF’s (MAGS) 3% gains.

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