March 3, 2024

Walmart Trades at New All-Time Highs Before Amazon

Walmart Surges to All-Time Highs Ahead of Amazon

The Unlikely Leader: Walmart Surges as Amazon Lags

It seems like a tale of David and Goliath unfolding in the stock market realm, with Walmart (NYSE:) emerging as the unlikely leader, soaring to new all-time highs even before the e-commerce behemoth Amazon (NASDAQ:) could achieve the same feat. In a surprising turn of events, Walmart has surged past its previous peak, hitting around $59 after a recent 3-for-1 stock split and surpassing its previous high-water mark of $56 set in November ’23. On the other hand, Amazon finds itself struggling to reclaim its glory days, having peaked at $188 in both July and November of ’21, and yet to revisit those heights 27 months later.

A Tale of Earnings Reports: Walmart vs. Amazon

Delving into the earnings reports of these retail giants, it becomes apparent that Walmart’s recent performance has been nothing short of stellar. With a focus on margins, Walmart’s gross margin witnessed a significant boost, increasing by 122 basis points year-over-year to 23.97% in fiscal Q4 ’24. Interestingly, advertising played a crucial role in fattening Walmart’s margins, with advertising revenue surging by 28% year-over-year to $3.8 billion. The company’s trajectory is on an upward trend, evident by the steady rise in revenue estimates, showcasing analysts’ confidence in Walmart’s future prospects.

Walmart’s Road to Redemption

Having navigated through inventory challenges in 2021 and 2022, Walmart is finally finding its footing and returning to a position of strength in terms of balance sheet and cash-flow metrics. Positioned as a mid-single-digit revenue grower and high-single-digit achiever in operating income and EPS growth, Walmart’s focus on grocery sales, which saw mid-single-digit growth in the Jan ’24 quarter, underscores its commitment to driving further expansion through improved margins.

In the annals of American history, only one former president has managed to secure reelection after losing the first term - Grover Cleveland in 1892, a solitary figure in this political parable. Fast forward to the present, where former President Donald Trump is in a neck-and-neck race with Vice President Kamala Harris for the 2024 presidential throne. Should Trump emerge victorious, his policy decisions could cast a long shadow on the fortunes of the revered "Magnificent Seven" companies that include tech behemoths like Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla. An intriguing narrative unfolds as investors weigh their options in this high-stakes drama.

Former President Donald Trump. Image source: Official White House Photo by Shealah Craighead.

Assessing Trump's Proposals and Their Ramifications

A trio of Trump's propositions loom large over the future of the Magnificent Seven, with his corporate tax cut scheme taking center stage. If re-elected, Trump vows to slice the federal corporate tax rate from the current 21% to a paltry 15%, a move that could recalibrate the financial landscape for these titans of industry. Tariffs are another cornerstone of his economic blueprint, with up to 20% levies on imports and a spotlight on China evident in his rhetoric. Moreover, Trump's zeal for deregulation, epitomized by a promise to scrap onerous rules at a 10:1 ratio against new regulations, could create seismic shifts, especially around artificial intelligence governance.

Forecasting the Corporate Weather for the Magnificent Seven

While a reduced tax burden might sound like sweet music to the ears of the Magnificent Seven, a deeper dive reveals a nuanced backdrop. Unveiling the effective tax rates paid by these giants in the last fiscal year paints a revealing picture. Alphabet, Amazon, Apple, Meta Platforms, Microsoft, and Nvidia all operate below the current 21% threshold, with Tesla even benefiting from a 50% tax boon, making the tax cut impact a mixed bag of fortunes.

Trump's tariff barrage could rattle the foundations of reliant companies, stirring debates on cost pass-through to consumers and the resultant sales pendulum. Apple's global supply chain stands vulnerable to the tariff storm, though players like Alphabet and Meta, deriving significant revenue from services, might weather the storm better.

The shadow of deregulation could sway fortunes in the cloudy skies of AI governance. Amazon, Microsoft, Alphabet, Nvidia, and to a lesser extent, Meta and Tesla, stand to gain from relaxed regulations, shaping a turbulent yet potentially rewarding horizon.

Trump's pointed criticism of Alphabet and Meta, juxtaposed with his favorable stance towards Microsoft and Nvidia, sets the stage for a strategic showdown where winners and losers are yet to emerge from the fog of political warfare.

Identifying the Ripest Pick among the Magnificent Seven

As the curtain rises on the looming political drama, the quest for the choicest investment amidst the Magnificent Seven intensifies. Microsoft and Nvidia emerge as prime contenders in this investment battleground. While Microsoft could reap the fruits of Trump's tax cuts due to its high tax rate and navigate the tariff headwinds, Nvidia's growth potential offers a tantalizing allure, promising the elixir of prosperity beyond the mirage of political turbulence. In the tumultuous landscape of Trumpian economics, the astute investor's choice between these icons could unfold as a pivotal journey towards prosperity.

Investment Insights: Assessing the Timing of Lucrative Opportunities Investment Insights: Assessing the Timing of Lucrative Opportunities

Amazon’s Struggle Amid Growth

In contrast, Amazon’s journey has been marked by a slowdown in revenue growth rates, shifting from the double-digit increases seen from 2000 to 2021 to a more tempered pace. Despite this, Amazon has reoriented its focus towards enhancing margins, with advertising and AWS playing pivotal roles in driving its performance. Noteworthy is Amazon’s operating income in Q4 ’23, which surpassed expectations by 26%, showcasing the company’s ability to deliver, culminating in its best 4th-quarter operating margin in a decade as highlighted by Morningstar.

The Verdict and Looking Ahead

As we reflect on the contrasting paths of Walmart and Amazon, it raises questions about the evolving landscape of the retail sector. With Amazon still maintaining an edge in efficiency due to its asset base, Walmart is steadily narrowing the gap in the e-commerce arena. The million-dollar question remains: Are we witnessing a shift where tech giants like Amazon, Alphabet, and Apple are reaching maturity, paving the way for newer sectors such as AI to take the mantle of growth leaders?

One intriguing comparison surfaces when examining the revenue and cash flow figures of Amazon and Walmart. Despite Amazon’s more streamlined asset base, Walmart’s fiscal strength in generating revenue and cash flow is undeniable, indicating a tightening of the competition in the digital retail space.

In conclusion, this analysis is not financial advice but a contemplation on the current state of two retail juggernauts. As history has shown, past performance is not indicative of future outcomes, and investing always carries inherent risks. Nevertheless, the intricate dance between Walmart and Amazon in the market arena provides a riveting narrative for investors and observers alike.

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