Amazon AWS—The Road to Trillion-Dollar Revenue

The long-term growth potential of Amazon Web Services (AWS) is becoming a key variable in reassessing Amazon's investment value.

Morgan Stanley analyst Brian Nowak maintained an "Overweight" rating on Amazon in a report released on August 16, with a baseline target price of $335, representing about 27% upside compared to the current stock price of around $262. At the same time, if AWS continues to grow as expected, Amazon’s stock price could reach $500 by the end of 2027.

During the earnings call, Amazon's management stated: "We have long believed that AWS could become a multi-tens of billions dollar revenue business. Now, we believe that this scale will at least double and very likely become a trillion-dollar annual revenue business, accompanied by attractive free cash flow and returns on invested capital."

The report suggests that against the backdrop of ongoing compute power expansion, the key variable determining when AWS reaches a trillion dollars in revenue is the monetization efficiency per incremental watt. AWS’s current monetization rate is about $8 per incremental watt, based on Morgan Stanley’s 2026 annual estimate. Morgan Stanley expects this efficiency to continue to improve with product innovation and changes in supply and demand.

AWS Path to a Trillion-Dollar Revenue: Compute Expansion as the Core Variable

Morgan Stanley’s analytical framework focuses on expansion of compute capacity and improvement in monetization efficiency. The report forecasts that Amazon will add 6 to 8 gigawatts (GW) of compute capacity between 2026 and 2027, then expand at a pace of about 8GW annually, pushing AWS’s total compute capacity from approximately 14GW in 2025 to about 120GW by 2035.

Based on this, the key to AWS revenue growth lies in monetization efficiency of compute power. Morgan Stanley calculates that if annual revenue per additional watt of compute rises to $12, AWS revenue could exceed $1 trillion by 2035; if monetization efficiency further increases to $14-$15, this goal could be achieved as early as 2034.

Under the base case scenario, assuming AWS adds about 8GW compute capacity per year and monetization efficiency gradually climbs to $12 per incremental watt, Morgan Stanley expects AWS revenue to increase from approximately $176.9 billion in 2026 to about $249.2 billion in 2027, up around 41% year-over-year. This means that the synchronized improvement in compute expansion and per-unit monetization efficiency will be the core driving force for AWS to achieve trillion-dollar revenue.

Margin Assumptions: AI Business May Replicate Core Cloud Business Trajectory

On the profitability side, Morgan Stanley cited Amazon management expressing that the AI business's margin and return trajectory is “highly similar to, or even slightly ahead of” the core cloud business in its early stage. On this basis, Morgan Stanley assumes a long-term AWS EBIT margin of around 30%.

Under this assumption, if AWS revenue reaches one trillion dollars, the corresponding EBIT would reach around $300 billion. Adding in reasonable retail business profit contributions, Morgan Stanley expects Amazon’s company-wide EBIT to reach approximately $500 billion between 2034 and 2036, with a compound annual growth rate (CAGR) of about 16% to 20%.

Specifically, under the scenario where monetization per incremental watt reaches $14, AWS EBIT is expected to be about $304 billion by 2034, and company-wide EBIT about $483 billion, with a CAGR of approximately 19%. If monetization per watt reaches $15, AWS EBIT and company-wide EBIT would be about $318 billion and $497 billion respectively, corresponding to a CAGR of about 20%.

Valuation Repricing: Current Stock Price Trades at About 50% Discount to Peers

Morgan Stanley believes Amazon’s current stock price does not yet fully reflect the above long-term profit potential. The report points out that if the approximately $500 billion long-term EBIT is discounted to 2028 with a 10% weighted average cost of capital (WACC), and then capitalized at around a 21x EV/EBIT valuation multiple, Amazon’s implied stock price by the end of 2027 would be about $500. This multiple is still about 10% below the peer average of around 23x.

From another perspective, Amazon’s current valuation is equivalent to about 11 times the 2035 expected EBIT (about $265 billion), discounted to 2028 at a 10% WACC. This is about a 50% discount compared to the average valuation level of roughly 23x for large-scale cloud and retail peers—including Alphabet, Microsoft, Meta, Walmart, Costco and Netflix.

Morgan Stanley points out that this valuation discount itself indicates further upside for Amazon. The report believes that faster-than-expected AWS revenue growth, continued margin expansion, and leverage from retail growth and logistics fulfillment cost improvements could all unlock further upside.