Is Amazon stock heading to $265? 1 Wall Street analyst thinks so.

On monday, Truist analyst Youssef Squali reiterated his buy rating on the tech juggernaut Amazon (AMZN -0.20%)raising its price target from $230 to $265. This target implies a 43% price appreciation over the next 12 months.

Based on Truist card data related to Amazon’s US revenue, Squali believes the company is on track to meet or exceed its third-quarter sales guidance. With analysts expecting 10% revenue growth next quarter, Amazon’s ability to maintain double-digit sales growth would be reassuring after several quarters of single-digit growth in recent years.

Noting a more resilient consumer, growing ad revenue, faster growth at Amazon Web Services and improved operating margins, Squali reiterated his optimism, explaining, “This (happens) even as the company invests aggressively in AI, Amazon Web Services (AWS), Logistics and the Kuiper Project”.

Amazon’s growth option is available at a reduced valuation

Trading at just 18 times cash from operations (CFO), Amazon’s valuation is at its lowest level since 2010 and is well below its 10-year average of 28. To put this price-to-CFO ratio into perspective, if Amazon pulls back from investing across a wide range of growth options (AI, AWS, ads, Kuiper, logistics, Prime Video, international, etc.), would be able to generate huge free cash flow (FCF) amounts.

Frankly, though, he doesn’t want to do that — and investors shouldn’t want him to. With one of the most incredible track records in the market in terms of the company’s optionality to grow with new businesses such as AWS, online advertising and its own logistics network, Amazon’s greatest strength is its continued deployment of efficient capital.

Amazon’s relatively cheap valuation paired with a growing 18% CFO margin while company is aggressively investing in its growth options, I agree with Squali’s optimism.

The icing on the cake for investors?

AWS has a 31 percent market share of the booming cloud infrastructure industry, which experts expect to double by 2028. Because AWS brings in more than half of Amazon’s operating revenue, the company’s funding for its promising optionality growth shouldn’t be running out of cash anytime soon.