KeyBanc raises Amazon price target to $350 on surging AI and cloud demand

What happened

KeyBanc increased its price target for Amazon stock to $350, citing strong momentum in artificial intelligence and cloud computing. The upgrade follows Amazon's second-quarter earnings, which showed AWS revenue hitting $42.2 billion, up 37.6% from a year earlier. This marked the fifth consecutive quarter of accelerating growth for the cloud division. Amazon also completed its $50 billion investment in OpenAI, positioning itself as the AI lab's largest backer. The deal includes a $138 billion multi-year compute commitment over eight years, granting OpenAI access to Amazon's custom Trainium chips. CEO Andy Jassy told investors that AWS could eventually become a $1 trillion annual revenue business, reflecting confidence in the ongoing shift from on-premise servers to cloud infrastructure. Amazon shares surged more than 15% following the earnings report and investment announcement.

Why the stock moved

The stock rallied after Amazon demonstrated that its heavy AI investments are translating into tangible revenue growth. AWS added $4.6 billion in sequential revenue during the quarter, about 80% more than its previous largest quarterly increase. Investors responded positively despite Amazon raising its 2026 capital expenditure forecast to $220 billion, up from $200 billion, because the spending supports infrastructure that is already showing returns. The OpenAI partnership reinforces Amazon's position as a critical supplier of AI computing power, with the deal securing years of committed cloud spending. Analysts at William Blair noted that markets appear willing to reward the elevated capital spending given AWS's strong margins and accelerating growth trajectory. The timing of the completed $35 billion final tranche to OpenAI, disclosed through recent SEC filings, underscored Amazon's commitment to capturing long-term AI demand.

Bigger picture

Amazon is betting that the global IT landscape will undergo a fundamental transformation over the next decade. CEO Andy Jassy estimates that about 85% of global IT spending currently goes to on-premise company servers, a ratio he expects to flip as businesses migrate to the cloud and layer AI capabilities on top. This migration is accelerating faster than many anticipated, driven by enterprises seeking to deploy AI agents and models without managing their own infrastructure. Amazon's dual strategy of investing in both OpenAI and Anthropic positions AWS as the preferred cloud provider for leading AI labs, creating a flywheel where model improvements drive higher cloud consumption. The company is also developing its own custom silicon, including the Trainium4 chip arriving in 2027, which promises 30 to 40 percent better price performance for AI workloads. However, power availability is emerging as a key constraint, with OpenAI's 2-gigawatt Trainium commitment highlighting the massive energy requirements of frontier AI systems.

What investors watch

Investors should monitor whether AWS can sustain its growth acceleration as the year progresses and competitors like Microsoft, Google, and Oracle intensify their own AI cloud offerings. Amazon's rising capital expenditure, now projected at $220 billion for 2026, will require continued strong revenue growth to justify the spending. The integration of OpenAI models into Amazon Bedrock and the rollout of the Stateful Runtime Environment for AI agents will test whether enterprises adopt Amazon's vision of simplified, scalable AI deployment. Regulatory scrutiny over concentrated AI power and infrastructure bottlenecks, particularly around energy and data center capacity, could also impact execution. Finally, the performance of Amazon's $140 billion to $200 billion stake in Anthropic and its evolving relationship with multiple AI labs will shape investor confidence in the company's multi-model strategy.