Morgan Stanley: New tax policies help Amazon automate, robots + cloud services leverage valuation reconstruction

According to the latest research report released by Morgan Stanley, the potential policy dividends of Trump's "Big and Beautiful" plan are expected to bring Amazon (AMZN.US) an annual free cash flow (FCF) gain of approximately $15 billion, which will be a key catalyst for accelerating warehouse automation and further reducing fulfillment costs.

Based on the closing price of $232.23 on July 24, 2025, Morgan Stanley reiterated its "Overweight" rating with a target price of $300, corresponding to a 35 times price-to-earnings ratio for 2026, indicating about a 29% upside potential from the current stock price.

Trump Plan: The Preceding Effect of $15 Billion Annual Cash Flow

Morgan Stanley, along with its internal accounting team, estimates that the Trump plan could enable Amazon to gain an additional $14.8 billion to $14.9 billion in free cash flow annually between 2025 and 2027, with $11.3 billion still achievable in 2028. After accounting for this increment, Amazon's free cash flow in 2025 is expected to jump from the original forecast of $30.2 billion to $45.1 billion, an increase of 49%; further rising to $62.7 billion in 2026, $76.1 billion in 2027, and $95.1 billion in 2028.

Morgan Stanley believes that this policy aims to incentivize American tech giants to invest more aggressively in generative AI to solidify their leading position in the global AI race. Google (GOOGL.US) announced an additional $10 billion in capital expenditures for the fiscal year 2025 last week, validating this trend.

Robotic Warehouses: $2-4 Billion Annual Savings for Every 10% Penetration Rate

In the same period, Morgan Stanley's report "Robotics: Expanding Retail Advantages and the Path to Annual Savings of $10 Billion" estimates that if 10% of the order flow at Amazon's global fulfillment centers goes through the latest generation of robotic warehouses, it could generate annual recurring savings of $2-4 billion by 2027; when the penetration rate rises to 25%, the savings range expands to $4.9-6.1 billion. The construction cost of a new single robotic warehouse is approximately $450 million, while upgrading an existing warehouse costs about $100 million.

Based on this calculation, if Amazon allocates 50% of the annual revenue from the Trump plan to automation, it could utilize $7.4 billion by 2025, corresponding to the construction of 17 new robotic warehouses or the renovation of 74 existing warehouses, accounting for approximately 2% and 11% of the current 700 active fulfillment centers, respectively. Even considering a construction cycle of over 12 months and supply chain bottlenecks, it can still significantly accelerate automation coverage.

AWS Capital Expenditures Are High, Robotic Investments Are More Flexible

Morgan Stanley's model has accounted for Amazon's AWS capital expenditures of $82 billion and $93 billion for 2025 and 2026, respectively, indicating that the company's infrastructure investments are at a high level. In contrast, reallocating part of the funds from the Trump plan to robotic investments not only offers higher marginal returns but also creates a long-term competitive advantage in fulfillment that is "faster, broader, and more economical."

Management expects that with each increase in automation level, unit fulfillment costs will continue to decline, thereby enhancing the Prime membership experience and e-commerce market share.

Valuation and Risks: The $300 Target Price Corresponds to 35 Times 2026 Earnings, Downside Risks Come from Macro and Competition

Morgan Stanley's target price of $300 is based on an average earnings per share of $8-9 for 2026-2027, corresponding to about 2 times PEG, which is a 30% discount compared to the median of Amazon's peers. If AWS growth or retail profit margins exceed expectations, it could trigger a bullish scenario of $350; if macro consumer spending weakens, the AI capital expenditure cycle extends, or AWS growth slows, it may drop to a bearish scenario of $190. Currently, institutional holdings account for 57.8%, with hedge funds having a net exposure of 13.9% and a long-short ratio of 1.7 times, indicating an overall bullish market sentiment.

Conclusion: Trump Act dividends + robotic leverage, Amazon's profit and efficiency double hit is imminent

Based on comprehensive cash flow estimates, cost-saving models, and valuation frameworks, Morgan Stanley believes that the $15 billion annual cash flow brought by the Trump Act is not just a number on paper, but an "accelerator" for Amazon to rapidly replicate robotic technology in its global fulfillment network and lock in long-term cost advantages.

In the context of an escalating arms race in generative AI, Amazon is expected to leverage policy dividends and economies of scale to further widen the gap with competitors, achieving a double hit in profitability and user experience