Morgan Stanley analysts have the sense that some in the tech world view Amazon.com Inc.'s cloud business as behind the curve in artificial intelligence, but they aren't worried.
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They wrote in a note to clients Thursday that their investor conversations indicate a view that "some tech leaders," including Amazon's AWS cloud-computing business, are "disadvantaged" when it comes to AI. Still, they like the road ahead for Amazon and its stock - AI opportunities and all.
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The analysts, led by Brian Nowak, think successful cloud or software operators in the AI era will need to hit on three areas, all of which Amazon can achieve. They expect winning players will have multiple unique and multimodal large language models, access to open-source applications and the ability to drive specific objectives for different industries.
"This last point will likely. be the most important factor.and notably is also the same strategy AWS has focused on over the past decade," they wrote.
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Amazon's AWS is already catering to industry-specific use cases on AI, in their view. They give the example of an AI transcription tool for medical providers that can take down conversations in ways that don't require providers to make edits. In social media, the company has worked with Snap Inc. on its AI chatbot for Snapchat users.
The Morgan Stanley team projects that AI on the whole could boost the market opportunity for public cloud players. The team's base-case AWS forecast calls for a 16% compound annual growth rate between 2022 and 2025, but the "extent to which AI tools drive new adoption and/or use cases for companies" could bring that growth rate up to 24% for the same period, assuming that Amazon holds on to its market share and the broader market opportunities play out.
Such a dynamic could fuel "further upward revisions and multiple expansion from the current more bearish AWS investor sentiment," they wrote, as they kept an overweight rating and $150 price target on Amazon's stock.
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