Amazon Web Services Set for Strong Performance Ahead Despite 'Disappointing' Third-Quarter Growth, Morgan Stanley Says

01:17 PM EDT, 10/30/2026 (MT Newswires) -- Amazon's (AMZN) cloud computing business is poised for strong performance ahead despite seeing "disappointing" growth in the third quarter, Morgan Stanley said in a note e-mailed Friday. The e-commerce giant's Amazon Web Services cloud computing unit's net sales grew 39% year-over-year in the September quarter, marking its fastest growth in almost five years, the company said late Thursday. Morgan Stanley called the performance "disappointing," saying it was projecting AWS sales to increase 42%. "But this seems mostly an expectations miss as ($3.8 billion) added (quarter-on-quarter) was the second highest (sequential dollars) added in AWS history and it does not change AWS's potential for further acceleration and its long-term opportunity," the brokerage said in the note to clients. AWS closed the quarter with $578 billion in future contracted sales, which Morgan Stanley said was up $82 billion sequentially and points to "strong multiyear" demand. "We're installing an (artificial intelligence) accelerator about every 14 seconds and almost as fast as we install capacity customers are gobbling it up," Amazon Chief Executive Andy Jassy said on an earnings call late Thursday, according to a FactSet transcript. "Our core compute and storage revenue grew at their fastest rates in several years." Amazon's third-quarter capital expenditures reached $77.26 billion, versus Morgan Stanley's expectations for $60 billion. "This level of CapEx spend should signal chip/rack delivery and new data center openings, which means more revenue is set to flow through with full utilization in (the fourth quarter)," the brokerage said. The company expects annual revenue growth of AWS to top 40% in 2027 and 2028 and be a $1 trillion revenue business in the next five to 10 years, Jassy said on the call. "We still expect 2026 cash CapEx of approximately $220 billion, the majority for AWS, and expect to spend meaningfully more in 2027 with a clear line of sight to attractive financial returns," Jassy told analysts. "AWS is a $184 billion annualized revenue run-rate business, and yet the opportunity remains extraordinary." Morgan Stanley lowered its price target on the Amazon stock to $335 from $350 while reiterating its overweight rating and calling it a "top pick." The company's confirmation that it will sell its Trainium chips to third party data centers next year came sooner than projected and is expected to be another potential driver of "profitable growth," the brokerage said. "This may not help (Amazon's) multiple, but it is likely to put higher floors in earnings power going forward." The company's shares were down 2.3% in Friday afternoon trade. So far this year, the stock has gained 3.2% in value. Alphabet (GOOG, GOOGL) unit Google cloud segment's sales surged 103% to $30.71 billion in the third quarter, while Microsoft's (MSFT) Azure cloud computing business saw a 48% jump in the company's fiscal first quarter. Price: 239.03, Change: -4.76, Percent Change: -1.95