Amazon’s ambition to turn its cloud computing business into a $1 trillion-a-year revenue engine is still a long way from becoming reality, but the pursuit of that target could create substantial value for shareholders, according to Morgan Stanley analyst Brian Nowak.
Amazon Chief Executive Andy Jassy recently said AWS could “very possibly” become a business generating $1 trillion in annual revenue, highlighting the scale of the opportunity management sees in cloud computing and artificial intelligence.
“We long believed AWS could become a few hundred billion dollar revenue business,” Amazon said, “and now believe it’ll be at least double that, and very possibly be a $1 trillion annual revenue business for us in time with very appealing accompanying free cash flow and return on invested capital.”
The company has also sought to reassure investors that the expansion of AI-related workloads will not necessarily come at the expense of profitability.
“We’ve done this before in the first era of cloud computing, just over a longer time horizon where demand built more gradually than it has in AI. But we see the margins and returns in AI tracking what we saw with core at the same point of evolution. Actually a little ahead.”
Amazon Web Services, the company’s cloud division, is currently generating about $170 billion in annualized sales.
That means revenue would have to increase almost sixfold for AWS to reach the $1 trillion milestone.
Morgan Stanley sees a path to $500
While AWS is unlikely to reach $1 trillion in revenue anytime soon, Nowak believes Amazon’s shares could benefit considerably as the company scales its cloud infrastructure.
In a recent note, the Morgan Stanley analyst outlined a scenario in which AWS could reach $1 trillion in annual revenue within the next eight to 10 years.
He also sees a possibility for Amazon’s overall earnings before interest and taxes to reach $500 billion over the same period.
Such a growth trajectory could support a share price of $500 by the end of 2027, according to the model.
That would be roughly double Amazon’s recent share price of around $261.
Morgan Stanley has already raised its Amazon price target to $335 from $330 following the company’s second-quarter earnings while reiterating an Overweight rating on it.
The revised target represents roughly 28% upside from Amazon’s Monday close of $261.31.
The more immediate investment case therefore does not depend on AWS reaching its ultimate $1 trillion target.
Instead, investors could benefit from continued cloud growth, rising AI demand and the resulting expansion in Amazon’s earnings.
Computing capacity will determine growth
The rapid development of artificial intelligence has created an enormous need for computing power, putting data-center capacity at the center of Amazon’s long-term growth strategy.
Nowak estimates Amazon will add 6 gigawatts of capacity in 2026 and another 8 gigawatts in 2027.
His longer-term model assumes AWS could continue adding roughly 8 gigawatts annually after that.
He described the assumption as a “reasonable range,” while acknowledging that forecasting infrastructure additions several years into the future is considerably more difficult.
Amazon has not disclosed its precise current data-center capacity.
Jassy said during an earnings call for the company’s September quarter that Amazon had added 3.8 gigawatts of data-center capacity over the preceding 12 months.
More recently, Jassy reiterated that Amazon is on pace to double its power capacity by the end of 2027 compared with 2025 levels.
The ability to bring additional capacity online will be particularly important if AI demand continues to expand rapidly.
Without enough computing infrastructure, AWS may struggle to convert strong customer demand into corresponding revenue growth.
Revenue generated from each watt matters
Nowak believes capacity is only part of the equation. The other major variable is how effectively AWS can monetize every watt of computing power it adds.
According to his estimates, each incremental watt currently generates about $8 in revenue for Amazon.
If AWS can increase that figure to $12 per watt, the company could potentially reach $1 trillion in annual revenue as early as 2035.
Technological advances could help cloud companies generate more economic value from existing power resources.
Improvements in computing efficiency, software, chip performance and data-center utilization could all increase the revenue generated from each unit of electricity.
That makes the economics of AI infrastructure just as important as the sheer amount of capacity Amazon can build.
Several risks could derail the forecast
The $1 trillion projection remains highly dependent on continued growth in demand for AI computing.
“As long as innovation and demand for [generative AI] tools continue to scale, we still believe each hyperscaler’s ability to bring on compute capacity is the key factor driving forward revenue growth,” Nowak wrote.
Beyond 2028, however, Amazon could encounter a range of constraints.
Its expansion will depend on the availability of servers and racks, improvements in power efficiency, regulatory approvals and the speed at which new data centers can be constructed.
There is also uncertainty over how long the current pace of AI investment can continue.
DA Davidson analyst Gil Luria told MarketWatch that any projection of $1 trillion in AWS revenue is “bold speculation.”
He believes AWS could reasonably grow by 40% to 50% this year, but warned that “extrapolating beyond that is more than ambitious.”
“There is no hard information Mr. Jassy or anybody else has to quantify a market that didn’t even exist three years ago,” Luria said.
For Amazon investors, the trillion-dollar AWS target is therefore better viewed as a long-term indication of the company’s ambitions than as a near-term earnings forecast.
Even if AWS falls short of that figure, sustained AI demand, expanding infrastructure and better monetization of computing capacity could still make the cloud division a powerful driver of Amazon’s future growth.
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