The firm cited its analysis of the company's previous three large investment cycles. It revealed shareholders saw a 44 percent return, on average, if they bought Amazon when its trailing 12-month capital expenditure spending growth first increased, versus a much lower 12 percent return if they bought when investment spending growth decreased.
"While these stretches have often raised investor questions around long-term profitability, we find the historical relationship between accelerated investment periods and revenue reacceleration suggests the benefits to growth and margins should materialize over the course of the next 12-18 months," analyst Heath Terry wrote in a note to clients Monday. "Put simply, in a business that generates the high returns that Amazon has demonstrated … reinvesting in the business should ultimately pay off."
The bank reiterated its conviction list buy rating on Amazon shares, saying the company's current investment cycle will lead to better sales growth.
"Investor focus going into 1Q results on Thursday remains on the near-term impact to operating profit from the company's investments in logistics, content, and India. We believe the more critical question is the impact of these investments on Amazon's growth outlook in both retail and [Amazon Web Services]," Terry wrote. "Heightened investment has historically been a strong leading indicator for revenue reacceleration at Amazon."
As a result, the analyst raised his price target for Amazon to $1,100 from $1,000, representing 21 percent upside from Monday's close. He predicts Amazon will generate $202 billion in sales next year versus the Wall Street consensus for $199.9 billion.
On the flip side to Goldman's bullish call, Raymond James downgraded Amazon to market perform from outperform on Tuesday.
Amazon shares are up 21 percent this year through Monday compared with the S&P 500's 6 percent return. The stock has rallied 45 percent in the past 12 months.
The internet giant is scheduled to report first-quarter earnings on Thursday.
Watch: 2 issues in Amazon's earnings report