Amazon is no longer just a retail giant; it is becoming an AI powerhouse fast. Investors have been mostly focused on Amazon's massive warehouse network, but Wolfe Research argues that a much larger story is unfolding within AWS.
In a recent note, analysts maintained an Outperform rating on the stock with a $250 price target. They believe the street is missing the sheer scale of the Anthropic partnership.
Wolfe projects that Anthropic's contribution to AWS revenue will explode from roughly $3.9 billion in 2025 to a staggering $25.02 billion by 2027. This isn't just a simple hosting agreement. Instead, it is a multi-layered monetization strategy that includes cloud computing and the heavy use of proprietary Trainium chips.
The two firms also have a lucrative revenue-sharing model through the Bedrock platform. Bedrock itself is already seeing momentum, reportedly reaching a "multi-billion dollar" annual run-rate at the end of 2025.
Beyond the $2 trillion market cap
But how does this translate to the bottom line? Wolfe estimates that AWS will hit 30% year-over-year revenue growth in both 2026 and 2027, comfortably outpacing the 25% growth currently expected by the rest of the Street. The optimistic outlook is fueled by the integration of one million Trainium chips, which should add significant "points of growth" to the cloud segment over the next two years.
Total AWS revenue by the end of 2027 is forecasted to reach $216.5 billion. The estimate includes $5 billion from OpenAI and over $23 billion from incremental capacity increases. Even with a challenging macro environment, the report suggests Amazon's leadership in e-commerce and cloud provides a unique "triad" of growth catalysts.
Amazon's valuation and the path to $250
What if Anthropic grows even faster than expected? A "bull case" scenario suggests that if Anthropic's revenue exceeds $60 billion by 2027, it could provide a 4% total uplift to the existing AWS revenue model.
Currently, Amazon shares trade at roughly 20.8x FY27 EPS, but Wolfe's price target is based on a 25x multiple. This reflects a premium for Amazon's dominant position in AI and its relentless focus on retail cost-cutting.
So, is the risk worth the reward? Every investment has its challenges, and Wolfe cites potential margin pressure from high spending and intensifying competition from other e-commerce platforms as key risks. Also, a major dip in the global economy could stall the momentum.
For now, however, the data points to a massive AI-driven expansion that most investors have yet to fully price in.