Wall Street Firm Names Amazon Its Top Pick With More Than 30% Upside. Is the Stock a Buy?

Morgan Stanley recently tapped Amazon (NASDAQ: AMZN) as its "Top Pick," placing a $350 price target on the stock. Analyst Brian Nowak called Amazon a "Rule of 90" company, meaning its annual revenue growth rate and earnings before interest, taxes, depreciation, and amortization (EBITDA) margin could exceed 90%.The analyst said he sees five catalysts for the stock to climb higher.

First, Nowak sees Amazon's cloud computing unit, Amazon Web Services (AWS), growing faster than previously expected. He now expects AWS to grow by 47% next year and 42% in 2028, after Nvidia noted that Amazon is expected to buy 2 million of its graphics processing units (GPUs) over the next two years. The analyst also predicted that Amazon will spend a whopping $355 billion in capital expenditures in 2027 and $365 billion in 2028.

In addition to AWS revenue nearly tripling from $128.7 billion in 2025 to $373.6 billion in 2028, Nowak also expects the segment's operating margins to expand. He sees them coming in at 42% in 2027 and 44% in 2028, helping lead to $16.50 in adjusted EPS in 2028. The analyst also thinks increased visibility into its AI model service, Bedrock, could help drive multiple expansion for the stock.

On the e-commerce side, Morgan Stanley sees Amazon becoming an AI shopping winner and expects it to eventually team up with Meta Platforms and its Muse AI agent, which it has initially been reluctant to do.

Finally, Nowak called out Amazon's use of robotics, noting that for every 10% of units processed through a robot-powered fulfillment center, Amazon can save between $2 billion and $4 billion a year. He said that Amazon's efficiency is expanding quicker than he initially modeled.

Image source: The Motley Fool.

Is Amazon stock a buy?

Amazon is one of my favorite stocks right now and one I own. The company should continue to see AWS growth accelerate as its large AI infrastructure investments begin to kick in. It has large commitments from both Anthropic and OpenAI, with its backlog growing into the triple digits in Q2, ending the quarter at $496 billion. The company is getting a nice return on its chip and networking investments with a payback of less than three years, while locking in contracts for five years or more.

I think Amazon's AWS economics could improve even further if it can direct more of this business toward its own Trainum chips. In April, CEO Andy Jassy said its chip business has a revenue run rate of around $20 billion and is closer to $50 billion when including internal use. Meanwhile, rival Alphabet has said it is seeing a one-year payback on its Tensor Processing Units (TPUs), so the opportunity is certainly there.

Regardless, Amazon has the best scale in the cloud computing space, and Jassy has said this could eventually become a $1 trillion revenue business.

I also feel that Amazon's e-commerce operations are underappreciated. The business continues to see strong sales growth despite an uneven consumer environment. At the same time, it has some attractive new growth initiatives, including expanding its logistics network to offer high-margin, less-than-truckload shipping. Meanwhile, the company has quietly become one of the largest digital advertisers on the planet, and it continues to see strong growth in this high-gross margin business.

Perhaps the most underestimated part of the Amazon story, though, is its leadership in robotics. The company is the largest manufacturer and user of robots in the world, with a fleet of over 1 million robots, all controlled by its DeepFleet AI model. This is creating significant operational efficiencies in its e-commerce operations, leading to profit growth that far exceeds revenue growth.

With the stock trading at a forward P/E of 25 times 2027 analyst estimates, Amazon trades at a huge discount to brick-and-mortar retailers like Walmart and Costco, making it a no-brainer buy in my view.

Geoffrey Seiler has positions in Alphabet, Amazon, and Meta Platforms. The Motley Fool has positions in and recommends Alphabet, Amazon, Costco Wholesale, Meta Platforms, Nvidia, and Walmart. The Motley Fool has a disclosure policy.