Morgan Stanley has identified Amazon (NASDAQ:AMZN) as its Top Pick, arguing that both AWS and the company’s Retail division are under-recognized winners in generative AI. The firm believes Amazon is well placed not only to benefit from, but also to shape, the next phase of AI-led transformation.
Although investors have been debating the payoff from heavy AI-related capital expenditures, Morgan Stanley analyst Brian Nowak said he remains optimistic “through this uncertainty” and highlighted two major catalysts that could drive a re-rating of the stock.
The first revolves around the sustainability of AWS growth. Nowak contends that demand for AWS services remains robust and that backlog trends point to growth above 30% “for quite some time.” However, he cautioned that the pace of acceleration is currently being constrained by limited capacity as new data centers come online.
To evaluate AI returns, Nowak applies a “capex yield analysis,” which looks at incremental revenue relative to the prior year’s capital spending. Under his base-case scenario, the implied yield is about 50% below the long-term average, indicating potential upside to AWS revenue if data center openings align more closely with investment levels.
He estimates that every 5% increase in yield would translate into roughly 130 basis points of additional AWS growth, and that a yield approaching $0.45 could push AWS growth into the mid-30% range year over year.
“As AWS opens more data centers, this “yield” should improve and AWS should continue to accelerate,” he wrote.
The second potential catalyst is what Nowak describes as agentic commerce. He believes Amazon’s expanding last-mile inventory footprint, ongoing infrastructure buildout and technology investments position it to lead in both vertical and horizontal AI-driven shopping experiences.
Amazon’s proprietary AI shopping assistant, Rufus, is already contributing around 140 basis points to fourth-quarter 2025 gross merchandise value growth, according to Nowak.
The company has also acknowledged the need to “collectively figure out a better customer experience” with horizontal AI agents, and noted that “we continue to have a number of conversations,” suggesting that partnership announcements may follow.
“We look for AMZN horizontal agentic partnerships to emerge, which will make investors feel more confident in AMZN’s long-term positioning,” Nowak wrote.
Currently, Amazon shares trade at approximately 19 times projected 2027 GAAP earnings per share, based on expected forward EPS growth of about 20%. On a PEG basis, that represents roughly a 40% discount to peers.
Morgan Stanley maintained its Overweight rating on the stock and reiterated a $300 price target, implying potential upside of about 50% from recent trading levels.