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Investing.com -- Morgan Stanley sees significant upside in Amazon as the tech giant’s cloud unit gathers momentum heading into 2026. The Wall Street bank keeps the stock as a top pick with a $315 price target, implying more than 40% upside from current levels.
The call reflects their view that stronger Amazon Web Services (AWS) growth will help unlock a higher earnings multiple, especially with the stock still trading at what they describe as a steep price/earnings to growth (PEG) discount to peers.
Specifically, Amazon is currently trading at roughly a 50% PEG discount relative to its peer group, analysts highlighted.
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The team led by Brian Nowak says AWS remains central to Amazon’s valuation reset. They highlight that the group’s updated backlog work shows “multiple paths to better than expected ~25%+ 2026 AWS revenue growth,” driven by both contracted workloads and faster consumption from customers such as OpenAI and Anthropic.
That this would represent low-single-digit upside versus their own 23% estimate and mid-single-digit upside versus consensus expectations at 20%, they added.
Amazon’s cloud backlog has grown steadily, with analysts estimating that roughly 35–40% of AWS revenue growth over the past three years has come from remaining performance obligations (RPOs).
They also estimate that AWS would recognize about 25% of its RPO over the next 12 months and roughly 50% over the next 24 months, a slower cadence than Microsoft or Google Cloud but one that still supports a solid multiyear demand profile.
Fourth-quarter 2025 backlog figures should benefit from the reported $38 billion OpenAI contract, analysts continued, and the non-backlog business, which they believe has already accelerated to about 20% year-on-year growth as of the third quarter of 2025.
Morgan Stanley sees several ways AWS could outperform. Every additional $15 billion added to the 2026 backlog “could drive an additional ~100bps of upside to our ’26 AWS Revenue growth,” while each incremental two percentage points of non-backlog growth could add “~125bps to ’26 AWS Revenue growth.”
Potential risks include slower contract conversion, timing mismatches in revenue recognition, and delays in AWS’s capacity expansion plans.