Amazon shares have received a fresh boost from bullish brokerage calls ahead of the company’s September-quarter results, with Morgan Stanley naming the e-commerce and cloud computing giant its top pick and UBS raising its price target, citing the potential for stronger profitability at Amazon Web Services (AWS).
Morgan Stanley raised its price target to $350 from $335, reiterating its ‘Overweight’ rating, while UBS lifted its target to $348 from $318 and maintained its ‘Buy’ rating. Both brokerages see scope for further gains, driven largely by accelerating cloud growth, artificial intelligence (AI) opportunities, and improving operating efficiency.
However, the optimistic outlook comes as Amazon prepares to significantly increase its capital expenditure to build AI infrastructure, raising questions about how quickly the investments will translate into stronger earnings and cash flow.
Morgan Stanley identifies five catalysts for Amazon stock
Morgan Stanley analyst Brian Nowak identified five potential growth drivers, with faster AWS growth and expanding margins at the center of the bullish outlook.
The brokerage expects AWS revenue to grow 47% in 2027 and 42% in 2028, up from its earlier projections of 41% and 37%, respectively. The revised estimates follow Nvidia’s disclosure that AWS is expected to purchase and deploy around two million of its graphics processing units over the two years.
Morgan Stanley also expects AWS operating margins to expand to 42% in 2027 and 44% in 2028, supporting its forecast of approximately $16.50 in Amazon earnings per share in 2028.
Nowak sees Amazon’s Bedrock AI model service as another underappreciated opportunity. Greater visibility into its growth could support a higher valuation for the stock, while AI-powered shopping agents could create new opportunities during the holiday shopping season. He also expects Amazon could eventually partner with Meta’s Muse AI agent.
Robotics is another potential efficiency driver. Morgan Stanley estimates that every 10% of Amazon’s global units processed through robotics-enabled fulfillment centers could generate annual savings of $2 billion to $4 billion. The brokerage also sees scope for AWS revenue to eventually reach $1 trillion, although that remains a longer-term scenario rather than its immediate forecast.
UBS sees AWS margins outperforming consensus amid AI spending
UBS is also bullish on Amazon’s cloud profitability, forecasting AWS operating margins of 46% in 2027, significantly above the consensus estimate of 38%, according to Investing.com.
The brokerage expects AWS to generate approximately $80 billion in incremental revenue, against around $20 billion in additional depreciation and amortisation expenses. UBS has raised its 2027 capital expenditure estimate to more than $300 billion from approximately $250 billion, reflecting the scale of Amazon’s AI infrastructure investments.
The higher spending could leave free cash flow at zero or in negative territory in 2027, according to the brokerage’s estimates. However, UBS argues that maintaining AWS operating margins near the second-quarter level of 39% would require a substantial increase in selling, general, and administrative expenses.
The investment case also comes amid strong cloud demand linked to AI. Amazon’s second-quarter revenue rose 20% year-on-year to $200.6 billion, while AWS revenue increased 37% to $42.2 billion.
(With inputs from agencies)
Disclaimer: We advise investors to check with certified experts before making any investment decisions.
