By Wall Street is assessing the impact of Big Tech’s massive capex plans for this year, but there is another corner of the stock market that’s set to benefit from big AI spending, Morgan Stanley said.
According to Morgan Stanley, the spending race among AI “hyperscalers” is an overlooked tailwind for retail sector stocks like Walmart and Target.
“Retail is on the cusp of a technology leap with AI, data, and automation. While retailers may not pursue AI infrastructure investments similar to tech companies, the tech capex boom suggests retailers are on the verge of and should benefit from a technology inflection,” equity analyst Simeon Gutman wrote.
This year’s combined $300 billion of announced AI investing between Microsoft, Amazon, Google, and Meta, might not seem like a development set to directly impact retailers, but Morgan Stanley predicts is is likely to lead to a boost in capex among retailers who can afford it.
That’s as the spending boom will offer big-box stores investing opportunities to improve in-store experiences, advertising, and automation. Those best equipped to invest will see market shares gain, a trend likely to appear amid coming earnings reports.
“The big should keep getting bigger and at a faster pace,” the analysts wrote.
Capital expenditures among retailers are projected to reach $55 billion, marking an average of around 7% year-on-year growth in 2025. Walmart, Costco, Target, Kroger, and Home Depot account for about 69% of total spend in hard, soft, and food retail.
Walmart will lead the cohort in capex spening. Estimated to spend $22 billion this year, Walmart’s expenditures are four times larger than what Costco is forecast to spend. Bank of America holds a $110 price target for Walmart stock, expecting improved profitability as well as digital advertising and marketplace growth.
One challenge could pose a risk Gutman’s thesis — cheaper AI allows smaller retailers to join in on AI growth.
The possibility has emerged amid the recent introduction of DeepSeek, a Chinese AI that is supposedly cheaper and as capable as Silicon Valley tech. Its implications have sparked doubt about Big Tech’s AI spending, briefly causing a trillion-dollar market wipeout last month.
If DeepSeek does discount AI expenditures, under-the-radar retail names aren’t the only ones set to win out. This scenario would make software stocks also worth buying.
“That said, we do not think this will be the case in the near-term and, for now, retailers best equipped to spend should be able to widen their advantages,” Gutman wrote.
