Morgan Stanley expects Amazon to rise nearly 50%. What will push it out of the bear zone?

E-commerce giant Amazon's cloud service, Amazon Web Services (AWS), is the most undervalued player in the AI market, according to Morgan Stanley analyst Brian Novak. Against this backdrop, despite the recent fall of the company's securities into the "bear" zone and Amazon's massive capital expenditures on AI, in an analyst note published on Wednesday, January 18, Novak predicted a rise in Amazon's securities to $300 per piece. Target implies a 47% appreciation of the company's securities, MarketWatch writes.

Despite the recent collapse in Amazon's stock amid billions of dollars of bigtech spending on AI, Morgan Stanley analyst Brian Novak reiterated his rating on Amazon's stock at "above market" (overweight) and a $300 target price. This is 47% above the closing level on February 18. According to the analyst, investors are overlooking a "golden opportunity" in the company's stock amid the AI boom, MarketWatch writes .

"We remain optimistic despite the uncertainty and continue to view Amazon as the most undervalued generative AI winner on our coverage list," Novak said in a research note.

The analyst mainly sees the growth driver for Amazon securities in the cloud division of the company Amazon Web Services (AWS). It, as Morgan Stanley believes, can become the main beneficiary of the wave of artificial intelligence. The company's rising capital spending, which has spooked many market participants, is a bullish signal for Amazon's cloud business, Novak said. AWS growth accelerated to 24% last quarter, the highest in the past 13 quarters. However, Novak notes that Amazon, like other cloud providers, is facing capacity constraints. Opening new data centers to meet demand will help the company's cloud division grow even faster, he believes, Barron's notes.

To support his idea, Novak cites calculations using a "capex yield" model. Currently, Morgan Stanley estimates AWS's underlying yield at $0.34 to $0.40 per $1 invested, which is about 50% below the long-term historical average of $0.77. If this rises to at least $0.45, AWS growth could jump to 35%. That would far exceed the market's current expectation of 25-26% growth for Amazon's cloud division between 2026 and 2027, MarketWatch writes.

In addition, Novak points out, Amazon's stock currently trades at a ratio of about 19 to Morgan Stanley's projected 2027 earnings of $10.41 per share, MarketWatch points out. Novak uses a PEG ratio (the ratio of a stock's price to a company's earnings and growth rate) to gauge the adequacy of value. This ratio helps understand whether an investor is overpaying for a company: if the PEG is 1, the stock price is in line with its earnings growth rate; if it's significantly higher, growth may be costing too much. Amazon trades at a 0.8 ratio, which is 40% below the company's competitors' average of 1.4x, the analyst points out.

In addition, according to Morgan Stanley, the development of so-called "agent commerce" may give Amazon's securities a boost: AI-agents, such as Rufus from Amazon itself, or third-party tools (ChatGPT, Google Gemini or others) can take over the process of market research and making purchases, writes MarketWatch. According to Morgan Stanley, Rufus has already delivered a 140 basis point acceleration in Amazon's gross sales growth by the end of 2025. That said, Amazon's main advantage over other companies entering this market segment is its unique shopping data and strong logistics infrastructure. These resources will be critical to any shopping application, making the company a key player in the new technology ecosystem, Novak said.

Last week, Amazon's stock posted its worst series of declines since 2006 following the report and plunged into a bear market, MarketWatch wrote. Weak earnings numbers and commitments to major AI spending spooked the market, Barron's specified.

Later, however, investors' faith in the company seems to have gradually returned: on February 17, Amazon shares closed in the plus, breaking a nine-day series of falls. On February 18, the growth continued, and the securities rose by another 2%. At the same time, the increase in the value of shares occurred despite the reporting data Berkshire Hathaway, which reduced its position in Amazon by 80% to 2.3 million shares in the fourth quarter of 2025.

At the premarket on February 19, Amazon's securities were down 0.4%. However, Wall Street analysts are generally unanimous in their positive assessment of Amazon's future: 64 analysts recommend buying the company's securities, six - to hold.

This article was AI-translated and verified by a human editor