Citi raises target price for Amazon.com, Inc. (AMZN.US) to $285: AI will become a "super engine", raising AWS revenue expectations.

Citigroup has raised its target price for Amazon.com, Inc. (AMZN.US) from $265 to $285, citing an increase in revenue expectations for Amazon.com, Inc.'s cloud service division AWS. The reason for the increase is the strong growth in artificial intelligence businesses like Anthropic and OpenAI, as well as the rapid expansion of gigawatt level capacity. Citigroup maintains a "buy" rating for Amazon.com, Inc. The analyst team led by Ronald Josey stated that they raised their revenue expectations for AWS based on the continued demand for artificial intelligence, as well as analysis of revenue contributions from Anthropic, OpenAI, and core (non-artificial intelligence) workloads. The analysts stated, "We now expect AWS revenue to grow by 28% year-on-year in the first quarter of 2026, by 29% for the full year of 2026, and it will accelerate to 37% year-on-year for the full year of 2027 as cooperation with Anthropic and OpenAI continues. Ultimately, AI revenue will account for approximately 58% of AWS's new revenue in 2026, and 72% in 2027. We believe that, given market demand, AWS can quickly increase its infrastructure capacity (we have also slightly adjusted our capital expenditure forecast). While we acknowledge some concerns about AWS's return on investment, competition, and visibility of free cash flow, considering the ability to quickly achieve profitability after adding capacity, accelerating revenue growth, and continuously increasing operating income, we believe AWS's market position is becoming increasingly solid." Based on their analysis of revenue from reasoning, training, and reselling operations by Anthropic on AWS infrastructure, the analysts predict that Anthropic will contribute approximately $18 billion and $31 billion in AWS revenue in 2026 and 2027, respectively, as Project Rainier continues. The analysts pointed out that due to AWS's $100 billion, eight-year Trainium collaboration agreement with OpenAI and a $38 billion, seven-year GPU collaboration agreement with NVIDIA Corporation (NVDA.US), OpenAI is expected to contribute $6 billion and $18 billion in AWS revenue in 2026 and 2027, respectively. This collaboration agreement is likely to take effect in the second half of 2026/the fourth quarter. Josey and his team added that their analysis indicates that AI revenue will account for approximately 58% of AWS's new revenue in 2026 and approximately 72% in 2027. "Nevertheless, as we believe that demand for AI is increasingly becoming a catalyst for driving new migrations and workloads, we believe that non-AI workloads can sustain a growth rate of around 15%."