1 Analyst Says Amazon Stock Has 30% Upside. What's the Bull Case for Buying Amazon Right Now?
Key Points
Amazon is spending $220 billion in capital expenditures this year.
But spending appears to be paying off, with AWS sales reaching a $169 billion annualized revenue run rate -- and possibly hitting $600 billion by 2036.
Amazon has a rapidly accelerating opportunity from selling AI chips and has achieved $25 billion in annualized revenue from its processors.
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Morgan Stanley analyst Brian Nowak recently released a bullish investor note for Amazon (NASDAQ: AMZN) and raised the price target on the company's stock to $350 -- more than 33% upside from its current price.
Amazon has significantly trailed the S&P 500 over the past six months as investors have questioned the broader artificial intelligence (AI) trade amid skyrocketing spending from tech companies. Amazon, for its part, says it will spend $220 billion this year on capital expenditures (capex), mostly for AI.
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How could all that spending be worth it for Amazon, and why might now be a good time to buy Amazon stock? It's because the tech giant has significant long-term opportunities in AI chips and cloud computing.
Image source: Getty Images.
Amazon remains the leading cloud computing company
Amazon is the leading cloud computing company, with its Amazon Web Services (AWS) taking 28% market share, according to Synergy Research Group. As AI has expanded over the past several years, companies need higher cloud computing capacity to run their new software and services.
The result is a 37% increase in AWS sales in the second quarter of 2026, and the business achieved $169 billion in annualized revenue. AWS is not just a fast-growing part of Amazon's total business; it's also highly profitable, bringing in $16.6 billion in operating income, with impressive operating margins of 39%.
AI cloud computing is poised to become a major part of the tech economy. Estimates from Goldman Sachs put the global AI cloud market at $2 trillion by 2030, as tech companies invest more in capacity.
Amazon CEO Andy Jassy has been bullish on AWS' growth potential for a while, believing it could be worth $300 billion in a decade. But with the recent surge in AI cloud demand, Jassy now thinks AWS' annualized revenue run rate could double that amount to $600 billion by 2036.
That growth potential should make Amazon's current capex spending much more palatable for investors. It's not that they should ignore spending, but with Amazon already a leading cloud company and successfully tapping into this massive market, I think it can continue to convert its AI capex into significant revenue.
AI chip sales are an increasingly important opportunity
Another catalyst for Amazon comes from the company's custom Trainium AI processor. Amazon's leadership said on the second-quarter earnings call that its custom processor revenue grew to an annualized revenue run rate of $25 billion.
That's important because custom AI processors play an increasingly critical role in AI. Custom processors like Trainium can run AI models more efficiently than general GPUs, and companies are scooping them up as they try to gain an advantage in the AI market.
Amazon says OpenAI, Anthropic, and others are already purchasing its custom processors, and Jassy said on the call: "We just have an incredible amount of demand for Trainium. There are a lot of customers who are very excited about using it in the form that we're providing right now."
Research from Trendforce shows that custom AI processor sales will grow by 45% this year, compared with 16% for GPU sales. And Amazon's long-term opportunities from this market could be huge, considering it already has $225 billion in customer commitments for its Trainium processors.
A 30% share price surge isn't guaranteed
AI stocks are a bit wobbly right now, and Amazon is no exception. But unlike some other tech companies that are spending heavily on AI and still trying to figure out how to generate significant revenue from it, Amazon's sales are accelerating.
And with its leading position in AI cloud computing and rising revenue from custom AI processors, the company is well positioned to remain an AI leader.
Whether the stock can jump 30% from its current level remains to be seen, but for the reasons I mentioned above, there are at least two solid reasons to be bullish on Amazon stock.
Should you buy stock in Amazon right now?
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Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon and Goldman Sachs Group. The Motley Fool has a disclosure policy.
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