Morgan Stanley lifted its price target for Amazon by $70 to $520 citing higher estimates in four areas: gross profit and customer growth, fulfillment costs, international retail and Amazon Web Services profitability.
"We are bullish about Amazon's trends and multiple sources of potential upside," Morgan Stanley analyst Brian Nowak wrote in the note.
Nowak believes Wall Street is underestimating Amazon's potential for growth in gross profit and customer base, predicting 7% growth, 5% higher than the Street. "Amazon Prime and efforts to improve selection, pricing and conversion are accelerating wallet share gains, and Amazon is expanding margins too," the analyst wrote.
On top of that, Nowak thinks the Street is underestimating Amazon's fulfillment efficiencies, international retail, and Amazon's cloud computing operations, Amazon Web Services (AWS).
"International retail losses aren't as bad as believed and the Street already implies they reach record losses," Nowak wrote, adding that "AWS is more profitable than previously believed" and "has easy comps."
The move from Morgan Stanley comes just two weeks after research firm Bernstein hiked their price target for Amazon as well, bumping them up to $600.
In its most recent earnings report, Amazon beat revenue expectations with $22.72 billion for the quarter. It also surprised analysts with a highly profitable AWS business, which contributed to $1.57 billion in sales with margins at 16.9%.
The optimism for Amazon may also be bolstered as reports have surfaced that the company will be expanding its Prime selection and allowing more third-party sellers to sell on Prime.