NEW YORK (TheStreet) -- Research firm Cowen and Company has upgraded its rating of Amazon (AMZN) - Get Reportto outperform, saying it expects the e-commerce giant will overtake Macy's (M) - Get Report as the largest domestic apparel retailer in the next year or two.

"Amazon is winning in large Retail and Tech markets given long-term investments, per our proprietary data/analysis," Cowen analyst John Blackledge wrote in a research note Monday morning. "We expect Amazon to be the #1 US Apparel retailer by '17, driven by accelerating purchaser growth, and continue to gain traction in other retail verticals."

Blackledge also upgraded his price target for Amazon to $565, up from $435. Amazon shares closed at $483.01 on Friday, and opened higher Monday, trading above $490 just before 10 a.m.

As it stands, Amazon's apparel and accessories business drives about 70% of the company's total revenue, according to Blackledge. Cowen estimates that Amazon's apparel business will grow from $16 billion in gross merchandise volume (GMV) for 2015 to $52 billion GMV in 2020, which would take Amazon from 5% of the total U.S. apparel industry to 14% market share. Were Amazon to follow this track as Cowen expects, it would displace Macy's as the No. 1 U.S. apparel retailer by 2017.

Some of the factors that are contributing to Amazon's wild success in the apparel industry include an expanding selection, improving brand relationships, and superior fulfillment and technology.

In the Cowen Internet Retail Tracker for July, Amazon continued to show high growth overall, but especially in apparel.

Amazon's U.S. apparel purchasers grew 36% year-over-year in the first half of 2015, up from 28% last year. That growth is even higher for Prime subscribers, which grew 57% year-over-year this year, compared to 43% last year.

Amazon has 34% more apparel purchasers than Target (TGT) - Get Report , and 2% more than Walmart (WMT) - Get Report . And an increasing number of Target and Walmart purchasers also bought apparel on Amazon, meaning that Target and Walmart's U.S. apparel share is under pressure.

"Amazon's long-game investment philosophy in massive Retail and Technology markets is increasingly paying off," Blackledge wrote. "Amazon should continue to win as it continues to attack a $2.3 trillion US retail total available market as well as international e-commerce leadership."

Amazon reports second-quarter earnings on Thursday after the close of trading. Analysts surveyed by Thomson Reuters expect the Seattle-based retailer to lose 14 cents a share on $22.37 billion in revenue.