The call adds to a theme seen in bank research this week: investors are being steered toward cash-rich hyperscalers rather than more leveraged parts of the AI buildout. UBS and Morgan Stanley Investment Management have both made similar points recently. Amazon’s outperformance on the day against other large cloud names suggests investors see AWS as having the most room to re-rate. The key test comes with third-quarter results on 29 October, where any sign of accelerating cloud growth would support the bull case. Spending is the risk: Morgan Stanley’s higher capital expenditure forecasts mean returns will be closely scrutinised, especially with bond yields elevated and investors questioning the pace of AI investment. The Nvidia link also matters, since large GPU commitments from hyperscalers underpin chip demand.---Morgan Stanley thinks the market is underrating Amazon’s cloud business, and with 2 million Nvidia chips on the way, it sees AWS doing the heavy lifting for the next leg higher.Summary:Morgan Stanley named Amazon a top pick and raised its price target to $350 from $335, keeping an Overweight rating; shares rose as much as 5% on Monday.The bank now expects AWS revenue growth of 47% in 2027 and 42% in 2028, up from 41% and 37%, after Nvidia said AWS is expected to deploy about 2 million of its GPUs over those years.It raised its Amazon capital spending forecasts to $355 billion in 2027 and $365 billion in 2028.Other catalysts include higher AWS margins, more visibility on the Bedrock AI service, AI-driven shopping and savings from robotics.The bank sees a bear case of $220 and a bull case of $410, a risk-reward ratio of about 3 to 1.Amazon reports third-quarter results on 29 October.Morgan Stanley has named Amazon a top pick and raised its price target on the stock to $350 from $335, setting out five catalysts it says could drive shares higher. The stock rose as much as 5% on Monday following the call.Analyst Brian Nowak, who kept an Overweight rating, said in a note on Sunday that the catalysts could help Amazon stand out in a market where AI leaders and laggards have been changing places. Morgan Stanley sees a bear case of $220 a share and a bull case of $410, which it describes as a risk-reward ratio of about 3 to 1.The most important driver is Amazon Web Services, the company’s cloud computing unit. Morgan Stanley now expects AWS revenue to grow 47% in 2027 and 42% in 2028, up from earlier forecasts of 41% and 37%. The upgrade follows Nvidia’s disclosure that it expects AWS to buy and deploy about 2 million of its GPUs over those two years. Nowak said he believes AWS’s growth and profit runway remains under-appreciated by the market.The extra chips come at a cost. Morgan Stanley raised its forecasts for Amazon’s capital spending to $355 billion in 2027 and $365 billion in 2028, underscoring the scale of investment behind the growth story.The bank also expects AWS profitability to improve, forecasting operating margins of 42% in 2027 and 44% in 2028, which it says would support Amazon earnings of about $16.50 a share in 2028. Its $350 target is based on about 21 times that estimate.The remaining catalysts extend beyond the cloud. Morgan Stanley said greater visibility into Bedrock, Amazon’s service for accessing AI models, could lift the stock’s valuation from around 15 times 2028 earnings. It also expects Amazon to emerge as a winner as AI shopping agents become more common, potentially through a partnership with Meta’s Muse AI agent over time, with the holiday season the first major test.Robotics is the fifth catalyst, which Morgan Stanley sees playing out in 2027. The bank estimates that every 10% of Amazon’s global units moved through its robotics-enabled fulfilment centres could save $2 billion to $4 billion a year, and Nowak said efficiency gains appear to be running faster than the bank originally modelled.The call comes as investors have become more selective within technology, favouring large, well-funded cloud providers over more highly leveraged parts of the AI buildout. Amazon reports its third-quarter results on 29 October after the US market close. This article was written by Eamonn Sheridan at investinglive.com.