Why Amazon Investors Could Be Hoping For An 'Unlikely' AWS Spin Off

Axiom Capital Analyst Victor Anthony said that it was "unlikely" that Amazon.com, Inc. (NASDAQ: AMZN) will spin off Amazon Web Services. But that doesn't stop bullish investors from continuing to "hold onto a spin as a future option to enhance shareholder value."

Anthony pegged AWS' value at $116 billion – a 61 percent increase from his prior valuation estimate based on yesterday's earnings report that showed high rates of revenue growth. Specifically, Anthony said that revenue and margins at AWS were "meaningfully above estimates." Since Q2 2014, margins have increased from 7.7 percent to 21.4 percent. With revenues expected to grow at a 56 percent three-year compound annual growth rate.

Amazon just reported a monster quarter, with the stock gaining nearly 20 percent in premarket trading. At last price, the stock was higher by $102 to $585. Axiom pegged the stock with a $650 price target by year-end 2016, noting that the company "doesn't get credit as an EBITDA story, but it should."

However, there are several risks to this growth story, Axiom said. In addition to macro risks and sales tax changes, which Amazon cannot necessarily control, Anthony said that the company is still dependent on Jeff Bezos – and the stock could fall if he were unable to perform his role as CEO. Finally, Axiom said it will watch competition and if it forces "Amazon into a perpetual investment cycle that will continue to pressure operating margins."

If Amazon holds its premarket price, the stock will be up by nearly 90 percent year to date. This follows declines of 22 percent in 2014. Axiom rates Amazon as a Buy. The $650 2016 price target is $150 over the firm's prior 2015 price target of $500.