Citigroup raises Amazon's (AMZN.US) target price to $285: AI will become a "super engine," increasing AWS revenue expectations.

Bloomberg News has learned that Citigroup has raised its target price for Amazon (AMZN.US) from $265 to $285, citing an upward revision of revenue expectations for Amazon Web Services (AWS) due to strong growth in AI businesses like Anthropic and OpenAI, as well as rapid expansion of gigawatt-scale capacity. Citigroup maintains a “Buy” rating on Amazon.

The analyst team led by Ronald Josey stated that their increased revenue forecast for AWS is based on sustained demand for artificial intelligence and analysis of revenue contributions from Anthropic, OpenAI, and core (non-AI) workloads.

The analysts said, “We now expect AWS revenue to grow 28% year-over-year in Q1 2026, and 29% for the full year 2026. As collaborations with Anthropic and OpenAI continue to advance, the growth rate for 2027 is expected to accelerate to 37%. Ultimately, AI revenue will account for about 58% of AWS’s incremental revenue in 2026 and 72% in 2027. We believe AWS can quickly scale its infrastructure capacity in response to market demand (we have also slightly adjusted our capital expenditure forecasts). While we acknowledge some concerns regarding AWS’s return on investment, competition, and free cash flow visibility, we believe that with the added capacity, AWS can quickly become profitable, revenue growth will accelerate, and operating income will continue to rise, strengthening its market position.”

Based on analysis of Anthropic’s revenue from running, training, and reselling on AWS infrastructure, the analysts expect Anthropic to contribute approximately $18 billion and $31 billion in AWS revenue in 2026 and 2027, respectively, as Project Rainier progresses.

The analysts pointed out that, given AWS’s $100 billion, eight-year Trainium partnership with OpenAI, and a $38 billion, seven-year GPU collaboration with NVIDIA (NVDA.US), OpenAI is expected to contribute $6 billion and $18 billion in AWS revenue in 2026 and 2027, respectively. These partnership agreements are likely to become effective in the second half or fourth quarter of 2026.

Josey and his team added that their analysis indicates AI revenue will account for about 58% of AWS’s new revenue in 2026 and approximately 72% in 2027. “Nevertheless, since we believe AI demand is increasingly a catalyst for new migrations and workloads, we expect non-AI workloads to continue growing at around 15%.”