Morgan Stanley said Amazon (AMZN) remains its Top Pick as both Amazon Web Services and Retail are underappreciated GenAI winners.
The firm has an Overweight rating and a $300 price target on Amazon’s stock. Shares of Amazon rose about 2% on Wednesday.
“AMZN now trades at ~19X our ’27 GAAP EPS…for ~20% forward EPS growth. This is a 40% discount to peers on a PEG basis…as the name is caught in GenAI narrative cross currents and question marks around ROIC [return on invested capital] on its AI-related capex. That said, we remain bullish through this uncertainty and continue to think AMZN is the most under-appreciated GenAI winner of our coverage,” said analysts led by Brian Nowak.
The analysts believe its AWS and Retail businesses are both positioned to drive and benefit from the technology and behavior changes ahead. The analysts added that Amazon remains their Top Pick as they turn to two key catalysts ahead to potentially re-rate shares and re-instill investor confidence in the ROIC behind the company’s investments.
Nowak and his team said that Catalyst 1 is delivering over 30% AWS growth and a strong backlog for confidence in growth durability. The analysts believe AWS demand is strong, as their analysis of AWS’ backlog gives them confidence in underlying demand to support over 30% growth for quite some time.
“But AWS growth remains capacity constrained…as investing and opening data centers will still dictate the slope of growth. This is why we are bullish this ramping AWS capex,” said the analysts.
The second catalyst, according to the analysts, is Agentic Commerce. The analysts noted that the company should establish horizontal leadership with partnerships while continuing to expand vertical leadership with its AI shopping assistant, Rufus.
“AMZN’s “agentic I’s” will also be critical to driving adoption of next generation horizontal agentic shoppers from OpenAI/GPT, Gemini, Meta AI or others. This is because we think broad and accurate price and product comparison, SKU availability and fast/free shipping will be important to driving incremental consumer utility and adoption,” said Nowak and his team.