Amazon Surges 5%: Can Accelerating AWS Growth and AI Investment Drive Shares to New Highs?

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2026/10/20 07:03

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Amazon Surges 5%: Can Accelerating AWS Growth and AI Investment Drive Shares to New Highs? image 0

Strong Rebound as Wall Street Raises Price Targets

Amazon (AMZN) surged 4.98% on October 19, closing at $262.45, with trading volume reaching approximately 54.7 million shares, roughly 40% above its three-month daily average. The stock significantly outperformed the Nasdaq Composite, which gained 1.11%.

Morgan Stanley named Amazon a top pick, maintained its Overweight rating, and raised its price target from $335 to $350, implying approximately 33% upside from the latest closing price. Investor attention is shifting back toward AWS growth potential and whether AI investments can drive further earnings expansion.

AWS Accelerates as E-Commerce and Advertising Support Profitability

Amazon's second-quarter revenue increased 20% year over year to $200.6 billion, while AWS revenue surged 37% to $42.2 billion, marking its fastest growth in 18 quarters. AWS generated $16.6 billion in operating income, accounting for approximately 60% of Amazon's total operating profit, highlighting the cloud business's increasing contribution to earnings.

Morgan Stanley projects AWS revenue growth of 47% in 2027 and 42% in 2028, although these forecasts depend on computing capacity expansion, customer demand, and pricing conditions. Meanwhile, AWS's backlog approaches $500 billion, while growing enterprise adoption of Bedrock supports the commercialization of AI computing infrastructure.

Beyond cloud services, Amazon's advertising revenue grew 26% in the second quarter, while automation continued to improve retail fulfillment efficiency. Morgan Stanley estimates that every additional 10% of merchandise processed through robotic fulfillment networks could generate $2 billion to $4 billion in annual cost savings.

Attractive Valuation Meets Heavy Capital Spending

As of October 19, Amazon's market capitalization stood at approximately $2.83 trillion, with a price-to-sales ratio of 3.65x and a trailing P/E of around 21.1x. However, second-quarter earnings included $53.4 billion in pretax non-operating gains, primarily related to its Anthropic investment, making the trailing P/E an imperfect measure of underlying operating valuation.

Amazon currently trades at approximately 27.9x forward earnings. Based on Morgan Stanley's projected 2028 EPS of $16.50, the stock trades at roughly 15.9x estimated 2028 earnings, suggesting potential valuation appeal if profit growth materializes.

However, Amazon has raised its planned 2026 capital expenditure to approximately $220 billion, while trailing 12-month free cash flow has turned negative by $7.6 billion. Whether AWS growth can offset the costs of aggressive infrastructure expansion will be critical to sustaining any valuation recovery.

Technical Breakout Emerges Ahead of Earnings

Technically, Amazon has reclaimed its 50-day moving average near $256.84, while its 14-day RSI has recovered to approximately 57, signaling improving short-term momentum.

The $255–257 range represents initial support, while the October 19 intraday high of $263.72 serves as immediate resistance. A decisive breakout on strong volume could open the door toward $270, followed by the 52-week high of $287.20. Conversely, a move back below the 50-day moving average would raise concerns about a failed breakout.

Amazon is scheduled to report third-quarter earnings after the US market closes on October 29. Management previously guided for quarterly revenue of $197 billion to $202 billion and operating income of $22.5 billion to $26.5 billion.

Investors will focus on whether AWS can sustain its strong growth, operating margins can improve, and returns on AI capital investment become more visible. These factors will determine whether Amazon can extend its recent rally and challenge its previous highs.

Disclaimer: The content of this article solely reflects the author's opinion and does not represent the platform in any capacity. This article is not intended to serve as a reference for making investment decisions.

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