Amazon spent years telling Wall Street that AWS could become a few hundred billion dollar revenue business. Then on its last earnings call, management revised that estimate up, significantly.
The new figure was $1 trillion. Not as a stretch goal. As what they now believe is a real possibility.
Morgan Stanley just shared a note with TheStreet that tries to answer the question that number raises: how far away is it, and what does it mean for the stock if the math actually works out?
Morgan Stanley Overweight rating on Amazon AMZN stock and $335 price target
In a note shared with TheStreet on August 16, Morgan Stanley analyst Brian Nowak laid out what a $1 trillion AWS business would mean for Amazon shareholders.
The firm raised its price target to $335 from $330 after Amazon’s Q2 earnings, representing roughly 27% upside from Amazon’s $262.65 close on August 14. The Overweight rating is unchanged, as TheStreet reported.
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But the note is really about a longer-range scenario. If AWS can reach $1 trillion in annual revenue and maintain margins consistent with what cloud computing has historically delivered, Morgan Stanley sees a path to $500 per share by year-end 2027. That is not the firm’s official forecast. It is a valuation exercise built on capacity, monetization and margin assumptions.
The bull case is $500. The $335 base is where Morgan Stanley actually plants its flag. The note’s broader message is that even the base case implies meaningful upside, and the conditions needed to push toward $500 are already starting to show up in the quarterly numbers.
Amazon AWS $1 trillion revenue vision and AI margin outlook from Q2 earnings
The note was prompted by what Amazon management said on the Q2 earnings call. The quote is worth reading directly.
“We long believed AWS could become a few hundred billion dollar revenue business,” Amazon said, “and now believe it’ll be at least double that, and very possibly be $1 trillion annual revenue business for us in time with very appealing accompanying free cash flow and return on invested capital.”
Management also addressed the margin question directly. “We’ve done this before in the first era of cloud computing, just over a longer time horizon where demand built more gradually than it has in AI. But we see the margins and returns in AI tracking what we saw with core at the same point of evolution. Actually a little ahead.”
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That commentary is the foundation of Morgan Stanley’s model. AWS revenue grew 37% year over year in Q2, its fastest growth in 18 quarters, with the AI and custom chips businesses each surpassing a substantial annualized revenue run rate, according to CNBC.
If margins in the AI era track historical cloud economics, as Amazon management suggests, then a $1 trillion AWS becomes a very large profit engine rather than just a large revenue line.
AWS AI data center capacity buildout and Amazon $220 billion capex plan
Morgan Stanley’s note is explicit about what actually determines how fast AWS gets to $1 trillion. It is not demand. Demand looks strong. The constraint is whether Amazon can bring enough computing capacity online fast enough to meet it.
Six gigawatts of new compute this year. Eight next year. Then eight a year after that, indefinitely. That’s the capacity schedule the note builds the whole model around.
Amazon raised its full-year capital expenditure forecast to roughly $220 billion to fund it, with AI infrastructure making up the majority of the increase, according to Quartz.
Beyond next year the note admits the picture gets murky. Power, construction, servers, labor. Any of those can create a bottleneck. But Morgan Stanley’s read on Amazon’s current execution is that the annual cadence it models is achievable.
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AWS revenue per watt monetization and when $1 trillion arrives for Amazon
Capacity alone doesn’t get AWS to $1 trillion. What matters is how much revenue comes out of each watt of that capacity.
The note puts AWS at roughly $8 in revenue per incremental watt right now. That number needs to go up. The note expects it to, driven by more valuable AI workloads and better compute pricing.
At higher monetization rates the model shows AWS reaching $1 trillion as early as 2034. At the base assumption the milestone arrives around 2035. The note projects strong AWS revenue growth through the end of the decade before moderating as the base gets larger.
If AWS margins in the AI era track historical cloud economics, a $1 trillion revenue line produces hundreds of billions in operating profit. Layer in the retail business and total Amazon operating profit could approach a figure that would make it one of the most profitable companies on earth.
Amazon AMZN stock risks free cash flow and Morgan Stanley $500 bull case
The risks are real and the note names them. Amazon’s AI infrastructure spending is already pressuring free cash flow, which swung to an outflow on a trailing 12-month basis through Q2 as property and equipment purchases jumped sharply year over year.
Monetization may not rise as fast as the model assumes. Competition could pressure pricing. Regulation could slow construction.
None of those risks disappear because Amazon said $1 trillion and Morgan Stanley built a model around it. AWS is already the largest cloud business in the world, it is growing at its fastest rate in 18 quarters, and the AI infrastructure cycle is still in its early stages.
The $500 scenario is the outcome if a lot of favorable trends continue at once. The $335 base case is the outcome if they just continue normally, according to Amazon’s official Q2 earnings release. For investors, Morgan Stanley’s message is that either way, Amazon’s biggest opportunity may no longer be selling more products online.
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