Amazon's 2025 stock gains just got wiped out. Here's how it could make a comeback.

Amazon has slipped back into the red for 2025 (about -1% as of Thursday) after a post‑earnings rally that briefly put the stock up ~16% year‑to‑date; a Q3 AWS reacceleration to +20% YoY helped but broader AI‑stock pressure has capped momentum. Morgan Stanley’s Brian Nowak reiterated an overweight and $315 price target (≈45% upside), arguing that AWS could reaccelerate to a base case of 23% growth in 2026 and potentially ≥25% if AI workloads and the $38bn seven‑year OpenAI deal drive a materially larger backlog (MS models: $60bn net new backlog → 25% growth; $75bn → 27%; ~1pp per $15bn). That bullish scenario contrasts with street consensus holding AWS at ~20% growth and a recent downgrade from Rothschild/Redburn citing weaker AI unit economics; Amazon’s PEG of ~1.4x versus a 1.9x peer median signals value if execution on AI/cloud demand proves out, but execution risk remains the key determinant of upside.

Analysis

Shares of Amazon reversed a recent rally and were down about 1% year-to-date as of Thursday after peaking roughly 16% in early November, indicating that a third-quarter AWS reacceleration to 20% year-over-year growth and an upbeat October earnings print were insufficient to overcome broader pressure on AI-linked names. Morgan Stanley analyst Brian Nowak reiterated an overweight rating and a $315 price target (about 45% upside), framing a comeback scenario around AWS reacceleration: his base case assumes 23% AWS growth in 2026 and he models a path to 25–27% if AI-driven backlog expands materially. Nowak ties growth to backlog math—$60 billion of net new backlog implies 25% AWS growth and $75 billion implies 27%, with roughly 1 percentage point of growth per $15 billion added—while the company’s seven-year, $38 billion OpenAI deal is expected to boost AWS backlog in Q4 2025. Street views are mixed: consensus currently holds AWS growth at ~20% for 2026 and Rothschild/Redburn recently downgraded the stock to neutral citing less attractive unit economics for AI workloads, even as Amazon trades at a PEG of ~1.4x versus a 1.9x peer median, presenting a valuation discount contingent on execution of the AWS backlog thesis.

Key Decisions for Investors

• Consider a tactical buy or add-to-core position given Morgan Stanley's $315 target and Amazon's PEG discount, but size allocations conservatively until AWS shows sustained reacceleration beyond the reported 20% YoY
• Monitor specific leading indicators: quarterly net new AWS backlog figures (watch for the $60bn–$75bn incremental range), Q4 2025 backlog impact from the $38bn OpenAI agreement, and management's 2026 AWS guidance versus the 20% street consensus
• If AWS growth remains at consensus (~20%) or unit-economics commentary from management weakens, reduce exposure or hedge using options because upside depends materially on execution of AI-driven cloud demand