Wolfe Research stated that the durability of Amazon Web Services (AWS) growth is being underestimated, forecasting an average annual revenue growth rate of around 30% over the next three years — above Wall Street’s consensus expectation of roughly 25%.

Wolfe set a price target of $255 for Amazon, based on approximately 25 times its projected 2027 earnings. The stock is currently trading at about 21 times forward earnings. Considering Amazon’s growth prospects in both cloud computing and retail, the firm believes this valuation is justified.

Wolfe’s projections are based on multiple factors, including increasing demand for AI computing and strategic partnerships with major developers. The firm estimates that AI company Anthropic could generate approximately $15.2 billion in related revenue for AWS by 2026 through cloud usage, access to Amazon’s Trainium chips, and revenue-sharing arrangements.

Wolfe also expects contributions tied to OpenAI to expand, although the impact of the recently announced $100 billion contract may not be reflected until 2027.

Beyond AI partnerships, Wolfe noted that AWS should benefit from additional data center capacity and steady growth in traditional cloud services. The brokerage forecasts that Amazon will add approximately 6 gigawatts of computing capacity annually in 2026 and 2027, supporting new revenue from both AI and core cloud services.

This expansion will require substantial investment. Wolfe estimates that Amazon could invest roughly $1 trillion in capital expenditures between 2024 and 2030, with AWS accounting for the majority of that spending.

Market Analysis:

Although Amazon’s related investments may weigh on free cash flow in the short term, the firm expects return on invested capital to stabilize around 2027 and begin improving by 2029 as new infrastructure starts generating revenue.