AWS's Path to $1 Trillion in Revenue: Long-Term Earnings Flexibility Supports AMZN Upside

Overview

This report focuses on AWS's long-term growth potential in the generative AI era. Morgan Stanley believes that, as inference demand expands, data center compute buildout continues, and monetization per unit of power improves, AWS has an opportunity to grow from approximately $170bn in current annualized revenue into a $1trln annual-revenue business, strengthening the long-term earnings and valuation case for Amazon.com Inc.

Core views

The core bullish thesis includes: first, the pace at which AWS compute capacity comes online provides the foundation for revenue expansion; second, supply and demand, product innovation, and compute pricing determine monetization per unit of incremental power, thereby determining when AWS reaches $1trln in revenue; third, if AI cloud business margins and returns approach the historical levels of the core cloud business, AWS and retail combined can generate meaningful EBIT growth. The report maintains a $335 price target and believes the conditions for a bull case with higher growth and margins are gradually emerging.

Analysis framework

The report uses scenario analysis and a top-down valuation framework: it projects AWS's revenue trajectory based on incremental data center compute capacity (GW) and monetization per unit of incremental power (dollars per watt); derives AWS and total company EBIT from long-term EBIT margins; and then estimates long-term share-price potential by capitalizing EBIT using EV/EBIT multiples and discounting it at a 10% WACC. It also derives a 12–18-month $335 price target using EPS and P/E valuation.

Methodology notes

• Operating Driver ModelCompute Capacity–Monetization Rate Revenue Projection

  Derives AWS revenue growth jointly from incremental GW of compute capacity and monetization per unit of incremental power.

  The report assumes approximately 8GW of incremental compute capacity annually after 2027 and tests the timing for AWS to reach $1trln in revenue under different monetization levels per unit of power.

• Scenario AnalysisBull–Base–Bear Scenarios

  Establishes a valuation range through differing assumptions for revenue and EBIT margins.

  The bull case assumes higher revenue and margins, with a $410 price target; the base case has a $335 price target; and the bear case assumes lower revenue and margins, with a $215 price target.

• Relative Valuation and Discounted ValuationEV/EBIT and WACC Discounting

  Capitalizes long-term EBIT at an EV/EBIT multiple and discounts it back to the target date.

  The long-term scenario uses approximately $500bn of EBIT, an EV/EBIT multiple of approximately 21x, and a 10% WACC, implying potential value of approximately $500 per share by the end of 2027.

• Earnings ValuationP/E Method

  Estimates a 12–18-month price target using forecast EPS and a target P/E multiple.

  The $335 price target is based on average 2027/2028 EPS of approximately $14 and a P/E multiple of approximately 25x, rolled forward to a midyear basis.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• AMZN.US

  Core Covered Equity

  Strengths

  AWS benefits from long-term AI and cloud-computing demand; advertising, Prime, and retail scale help improve the revenue mix and profitability; high-margin businesses can support continued investment.

  Weaknesses

  Retail has relatively low margins, while data center expansion entails substantial capital expenditure and execution demands.

  Comparison

  The report believes AMZN's implied long-term valuation trades at a discount relative to hyperscale cloud providers and the broader peer group; the long-term scenario uses approximately 21x EV/EBIT, below the peer average of approximately 23x.

  Risks

  AWS growth or margins may fall short of expectations, the investment cycle may be extended, retail merchandise margins may weaken, and data center construction may face power, labor, construction, and regulatory constraints.

• AWS

  AMZN's core cloud-computing business and long-term value driver

  Strengths

  It has large-scale compute demand in the generative AI inference cycle, potential for high ROIC, and room for improved monetization per unit of power.

  Weaknesses

  There is limited visibility into incremental capacity after 2027, server and rack procurement, power-efficiency improvements, and the regulatory environment.

  Comparison

  Management believes AI business margins and returns can track, or even modestly exceed, those of the core cloud business at a similar stage of development.

  Risks

  Supply-demand imbalances, compute pricing pressure, insufficient product innovation, or delays in capacity coming online could all reduce monetization rates.

Key data

• RatingOverweightHigher expected risk-adjusted return relative to the industry coverage universe.
• Price Target$335.00Based on average 2027/2028 EPS at approximately 25x.
• Current Share Price$262.65Closing price on 2026-08-14.
• Current AWS Annualized RevenueApproximately $170bnUsed by the report to measure the growth runway toward the $1trln long-term target.
• Incremental Compute Capacity in 2026/20276GW/8GWThe compute capacity Morgan Stanley expects AMZN to add in 2026 and 2027.
• Long-Term Annual Incremental Compute Capacity AssumptionApproximately 8GWAnnual increment after 2027 in the base case.
• AWS Monetization per Unit of Incremental PowerApproximately $8/watt in 2026The report expects this level to rise; $12/watt could enable $1trln in revenue by 2035, while $14–$15/watt could enable it by 2034.
• AWS Long-Term RevenueApproximately $1trlnThe report expects this to be achieved around 2034–2035, depending on monetization rates.
• AWS Long-Term EBITApproximately $300bnAssumes a long-term EBIT margin of approximately 30%, corresponding to 2034–2036.
• AMZN Long-Term Total EBITApproximately $500bnIncluding retail, the report expects this in 2034–2036, implying a long-term CAGR of approximately 16%–20%.
• 2026E Revenue$833,352mmMorgan Stanley estimate.
• 2026E GAAP EBIT$116,753mmMorgan Stanley estimate.
• 2026E AWS Revenue Growth37.4%Morgan Stanley estimate; 2027E is 40.8% and 2028E is 36.8%.

Impact & implications

For investors, achievement of the near-term price target depends mainly on AWS revenue growth, margins, and retail fulfillment efficiency; long-term re-rating depends on whether compute supply can continue to come online, whether AI inference demand can support higher monetization per unit of power, and whether the AI cloud business can sustain returns close to those of the core cloud business. If the long-term earnings trajectory is validated, the market may raise its valuation of AMZN's forward revenue, EBIT, and ROIC.

Risks

• Capital expenditures and investment intensity rise and persist longer than expected.
• AWS revenue growth slows and/or margins decline.
• Retail merchandise margins are below expectations.
• Data center construction is constrained by power supply, labor, construction progress, equipment procurement, or regulation.
• AI demand, cloud-service pricing, or product innovation fails to support improved monetization per unit of incremental power.

What to watch

• AWS quarterly revenue growth, order demand, and management commentary on AI inference demand.
• Incremental data center capacity, GW commissioning pace, and power and construction constraints.
• Compute monetization, cloud-service pricing, and changes in the AI product mix.
• AWS operating margins and returns on capital expenditure trends.
• Retail revenue, first-party merchandise margins, and logistics and fulfillment leverage.
• Advertising growth and recurring revenue and mix improvements from Prime memberships.