Morgan Stanley adds Amazon as Top Pick

Morgan Stanley has named Amazon (AMZN) a new top pick, citing the company's major expansion into the $600 billion fresh grocery market. This strategic push, which is comparable in size to Amazon's current U.S. GMV, is anticipated to unlock durably faster growth, with each 1% market share capture potentially adding 120 basis points to U.S. GMV. The bank addresses profitability concerns by highlighting Amazon's preparedness with cold storage retrofits and safeguards like minimum basket sizes and higher fresh merchandise margins, projecting the initiative will generate incremental EBIT and further leverage the network.

Analysis

Morgan Stanley has designated Amazon.com (AMZN) as a new top pick, predicated on the company's significant expansion into the $600 billion fresh grocery and perishables market. This strategic initiative is viewed as a primary driver for accelerated growth, as the target market's size is comparable to Amazon's entire projected 2026 U.S. Gross Merchandise Volume (GMV) of approximately $570 billion. The bank's model suggests that every 1% of market share captured could add around 120 basis points to U.S. GMV growth. Operationally, Amazon appears prepared for a 2,300-city rollout, having retrofitted its fulfillment and delivery network with cold storage capabilities. While investors have raised concerns about the logistics and profitability of perishables, Morgan Stanley argues these are mitigated by safeguards such as a $25 minimum basket size, larger overall orders from grocery top-offs, and merchandise margins on fresh goods that are reportedly at the higher end of Amazon's retail categories. Consequently, the bank projects the expansion will generate incremental EBIT and drive further leverage across Amazon's extensive logistics network.

Key Decisions for Investors

• Investors should re-evaluate growth models for Amazon to incorporate the material impact of its entry into the $600 billion fresh grocery market, which Morgan Stanley identifies as a new, durable growth driver.
• Monitor execution and early-stage metrics from the 2,300-city grocery launch, specifically focusing on basket sizes, margin performance, and any commentary on logistics costs to validate the thesis that the initiative is EBIT-accretive.
• Consider that successful penetration into the perishables market could justify a re-rating of Amazon's valuation, as it significantly expands the company's total addressable market beyond its current core operations.