Morgan Stanley has named Amazon (NASDAQ:AMZN) its Top Pick, saying both AWS and Retail are under-appreciated GenAI winners, as it believes the company is positioned to drive and benefit from the next wave of AI-driven change.

While investor debate has focused on returns on AI-related capital spending, Morgan Stanley analyst Brian Nowak said he remains bullish “through this uncertainty” and sees two key catalysts that could help re-rate the shares.

The first catalyst centers on AWS growth durability. Nowak argues AWS demand remains strong, and that backlog trends support 30%+ growth “for quite some time.” Yet, the analyst notes that capacity constraints tied to data center openings are currently limiting the slope of acceleration.

Nowak frames returns on AI investment through a “capex yield analysis,” measuring incremental revenue as a percentage of prior-year capital spending. His base case implies a yield roughly 50% below the long-term average, suggesting upside risk to AWS revenue if data center openings catch up with spending.

Nowak estimates that every 5% improvement in yield would add about 130 basis points to AWS growth, with a move to roughly $0.45 potentially driving mid-30% year-over-year AWS growth.

“As AWS opens more data centers, this “yield” should improve and AWS should continue to accelerate,” he wrote.

The second catalyst is agentic commerce. Nowak said Amazon’s growing last-mile inventory, expanding infrastructure and technology investments position it to lead in both vertical and horizontal agentic shopping.

The company’s platform-specific agent Rufus is already contributing 140 basis points to fourth-quarter 2025 gross merchandise value (GMV) growth, he notes.

Amazon has acknowledged the need to “collectively figure out a better customer experience” with horizontal AI agents, and added that “we continue to have a number of conversations,” signaling potential partnerships ahead.

“We look for AMZN horizontal agentic partnerships to emerge, which will make investors feel more confident in AMZN’s long-term positioning,” Nowak wrote.

Amazon shares currently trade at roughly 19x its 2027 GAAP EPS estimate for about 20% forward EPS growth, representing a 40% discount to peers on a PEG basis.

Morgan Stanley reiterated its Overweight rating and $300 price target, which implies about 50% upside from recent levels.