Walmart: Cheap Grocer or Expensive Tech Stock?

Hey there, bargain hunter.

Here is the question worth sitting with before Thursday’s open: when a company reports $6.4 billion in advertising revenue growing at 46% annually, runs the second-largest retail media network in the United States, and operates an AI shopping agent that produces 35% higher order values, at what point does calling it a grocery stock become a category error?

Walmart reports Q2 FY2027 earnings August 20 before the market opens. The stock sits near $116, down more than 14% from its 52-week high of $135.16 reached May 19. Consumer sentiment has deteriorated. July retail sales fell 0.6%, the steepest monthly drop since May 2025. Wall Street is nervous.

That nervousness is worth examining closely. Not because it is wrong, but because it may be misidentifying the risk. The question is not whether Walmart will have a difficult quarter. The question is whether the market’s anxiety about short-term headwinds is obscuring the value being created inside a business that no longer resembles the company priced into its decade-old valuation history.

Let us look at the evidence.

The Scoreboard: What Has Happened

Start with the facts on the ground. Q1 FY2027, reported May 21, showed total revenues of $177.8 billion against Street expectations near $174.8 billion. U.S. comparable sales grew 4.1%. Global e-commerce grew 26%. Advertising grew 37% globally, with Walmart Connect U.S. growing 44% excluding VIZIO. Third-party marketplace net sales grew nearly 50%, the fastest pace in roughly ten quarters.

Operating income grew 5.0%. That is the number that caused the stock to fall 8% on earnings day, because the guidance had pointed to something better. The culprit was specific and quantified: higher fuel costs in distribution and fulfillment created a $175 million headwind, weighing on operating income growth by approximately 250 basis points. CFO John David Rainey was explicit on the Q1 call, warning that the fuel burden could be even larger in Q2 if prices held. He also said Q1 was likely the low point for operating income growth this fiscal year.

The stock was trading near $135 in May. It slipped below $107 in July after Cleveland Research flagged apparent comparable-sales deceleration on July 1. Today it sits near $116, below both its prior peak and the average analyst price target of roughly $138.

That is a 14% discount to a consensus that has not downgraded the stock. Of 43 analysts covering WMT, zero carry a sell rating. Bank of America has a $144 target. The market is doing something that the analysts are not. That divergence is the starting point for the real analysis.

The Real Reason: What Is Actually Driving the Discount

The market did not sell WMT because Walmart is a bad business. It sold WMT because Walmart held its full-year guidance unchanged after Q1, when a meaningful portion of the investor base had been positioned for a raise. At a 48 times trailing P/E at the time of Q1 results, there was no margin of forgiveness. The fuel cost headwind was real. The guidance implied Q2 EPS of $0.72 to $0.74, which came in below the prior consensus near $0.75. That is not a disaster. That is a business performing within its own expectations that failed to exceed the market’s more ambitious ones.

The broader macro frame has not helped. July retail sales fell 0.6%, according to the Commerce Department’s August 14 release, the sharpest monthly decline since May 2025. University of Michigan consumer sentiment fell to a preliminary reading of 51 in early August, ending two months of improvement. Crude oil above $82 per barrel keeps the fuel cost pressure live. Each of these data points is real. None of them is specific to Walmart’s competitive position.

Here is the core question: is the July consumer softness a temporary setback in the economic cycle, or is it evidence that the consumer is durably impaired in a way that changes Walmart’s long-term earnings trajectory? That distinction determines whether the current discount is an opportunity or a warning.

Historically, Walmart has been one of the primary beneficiaries of consumer stress. When household budgets tighten, trade-down behavior from specialty retail and full-price grocers flows toward Walmart’s value proposition. The July data is bad for the macro picture. It is not obviously bad for Walmart relative to every other retailer in the space.

The Deep Dive: What This Business Actually Is

Walmart operates more than 10,900 stores across 19 countries and serves approximately 280 million customers and members each week. That physical infrastructure is not the growth story. It is the foundation that makes the growth story possible.

The growth story has three components that did not exist in meaningful form a decade ago.

Retail media. Walmart Connect, the U.S. advertising platform, operates across Walmart.com, the Walmart App, and 170,000 digital screens in more than 4,500 U.S. stores, alongside VIZIO’s connected television inventory. Global advertising revenue reached $6.4 billion in FY2026, a 46% year-over-year increase from $4.4 billion the prior year. Advertising has outpaced overall sales growth every single quarter since Walmart began reporting advertising metrics in Q3 FY2023. The business is now the second-largest retail media network in the United States, trailing only Amazon’s far larger advertising machine. Retail media gross margins land north of 70%, which is structurally different from the mid-20s margins on core merchandise.

Marketplace. Third-party marketplace net sales grew nearly 50% in Q1 FY2027. The marketplace now has more than 200,000 active sellers. Marketplace sellers increased their advertising spend on Walmart Connect by more than 50% in Q1, meaning the marketplace and advertising businesses are compounding each other: more sellers create more advertising inventory, which generates higher-margin revenue without proportional cost growth.

AI-native commerce. Sparky, Walmart’s AI shopping agent, has moved from an app feature to a cross-surface infrastructure layer operating across e-commerce, mobile, and physical stores. CEO John Furner confirmed on the Q1 FY2027 earnings call that Sparky users generate average order values about 35% higher than non-users. Weekly active users more than doubled in a single quarter. Units purchased through Sparky grew more than fourfold in the same period. By Q4 FY2026, roughly half of all Walmart app users had already tried the agent. Walmart also has partnerships with both Alphabet and OpenAI, extending Sparky’s commerce surface beyond the Walmart app itself.

What is the insight here? A customer who discovers a product through Sparky rather than keyword search spends 35% more per order and is likely being served algorithmically optimized recommendations that include sponsored placements. That dynamic, basket expansion combined with advertising yield per session, is the mechanism by which the AI investment compounds into both revenue and margin simultaneously. It is not a feature. It is a monetization layer being built on top of the world’s largest physical retail network.

The CFO, John David Rainey, has said advertising and membership fees together accounted for nearly one-third of operating income in Q4 FY2026. Two lines that represent a small fraction of total net sales generating one-third of operating profit. That arithmetic explains why analysts are not selling the stock even as the price has pulled back.

The Data: Concrete Metrics

Here is what the financial picture actually looks like, with verified figures from Walmart’s own filings and the Q1 FY2027 earnings release.

• Revenue (Q1 FY2027): $177.8 billion total revenues, up 7.3% year-over-year. Beat the $174.8 billion consensus by $3 billion.
• U.S. comp sales (Q1 FY2027): 4.1% growth. Transaction count grew at the strongest rate in six quarters, even absorbing a 100 basis-point headwind from maximum fair pricing legislation in pharmacy and nearly 100 basis points from egg price deflation.
• E-commerce (Q1 FY2027): 26% global growth. Walmart U.S. delivery grew 45%.
• Advertising (Q1 FY2027): 37% global growth. Walmart Connect U.S. grew 44% excluding VIZIO. Global advertising reached $6.4 billion for full-year FY2026.
• Marketplace (Q1 FY2027): Third-party net sales grew nearly 50%. Marketplace sellers increased advertising spend by more than 50%.
• Operating income (Q1 FY2027): Up 5.0% reported. Adjusted operating income up 5.7%. The 250 basis-point fuel cost headwind on $175 million of absorbed costs is the primary reason the result trailed the guidance range midpoint.
• Free cash flow (Q1 FY2027): Negative $1.9 billion, a $2.4 billion year-over-year deterioration. Capital expenditures rose $1.7 billion to $6.7 billion in Q1, funding omnichannel capacity, technology, and supply chain automation.
• Full-year FY2026 free cash flow: $14.9 billion, up $2.3 billion from the prior year, with operating cash flow of $41.6 billion.
• FY2027 guidance: Net sales growth of 3.5% to 4.5% in constant currency. Adjusted EPS of $2.75 to $2.85. Operating income growth of 6% to 8% in constant currency for the full year. Q2 guidance: net sales up 4% to 5%, operating income up 7% to 10%, adjusted EPS $0.72 to $0.74.
• Inventory (Q1 FY2027): $62.6 billion, up 8.9% year-over-year, reflecting investment in supply chain positioning ahead of demand.

The free cash flow figure is the one to think carefully about. Negative $1.9 billion in Q1 sounds alarming in isolation. In context, it reflects $6.7 billion in capital expenditures on a quarter where operating cash flow was $4.7 billion. The full-year FY2026 picture, $14.9 billion in free cash flow on $41.6 billion of operating cash, tells you the underlying business generates substantial cash. The Q1 FY2027 figure tells you Walmart is currently spending aggressively to build the infrastructure that higher-margin businesses require. Peak investment phases depress near-term free cash flow. They either produce a return or they do not. Walmart’s advertising and marketplace results suggest they are producing one.

Is It Cheap? The Valuation Honest Reckoning

Bargain hunter, this is where intellectual honesty is required. Walmart is not cheap by traditional retail standards. Not even close.

The trailing P/E on WMT sits near 39 to 40 times, depending on the trailing earnings period used. The forward P/E on FY2027 consensus earnings near $2.89 per share implies roughly 40 times. The ten-year historical average P/E for WMT is approximately 32 times. The current multiple is roughly 23% to 25% above that historical average. The retail sector median forward P/E, per GuruFocus, is 14.86 times. Walmart trades at more than twice the sector median.

Peer comparison adds context without comfort. Costco trades near 49 to 52 times forward earnings. Target trades near 11 to 15 times. Dollar General and Dollar Tree sit in the 17 to 23 times range. Walmart is expensive relative to most of its direct competitors, cheaper than Costco, and dramatically more expensive than the discount channel peers.

The case for paying a premium has a specific logic: if advertising and membership now represent one-third of operating profit and are growing at 30% to 46% annually, then valuing Walmart purely on a retail multiple systematically undervalues the highest-margin segment of the business. The argument is that WMT deserves a blended multiple, part retail, part technology or media company, that is higher than any pure grocery chain would warrant.

That argument is coherent. It is also dependent on the advertising business continuing to grow faster than the core. In FY2026, advertising grew 46%. In Q1 FY2027, it grew 37%. Deceleration has begun. If Q2 comes in at 28% to 30%, the deceleration is visible and the dual-multiple justification weakens. Not because 30% advertising growth is bad in any absolute sense, but because the premium valuation requires that the high-margin business remains the dominant driver of earnings growth.

GuruFocus calculates WMT’s GF Value at $94.58, suggesting the stock is currently trading roughly 19% above its estimated intrinsic value at current prices near $116. That is not a value investor’s entry point by any conventional measure. It is a growth investor’s bet that the transformation holds. The distinction matters for how you think about risk.

Bull, Base, and Bear: What Could Go Right and Wrong

Bull Case

Q2 FY2027 operating income grows at or above 9%, confirming that Q1’s fuel headwind was the low point and that advertising leverage is compounding as guided. Global advertising growth holds above 35%. Sparky commentary on the 7 a.m. CDT conference call reveals sequential acceleration in weekly active users and average order value. Management raises full-year FY2027 EPS guidance above the current $2.75 to $2.85 range. The stock re-rates toward $125 to $128 on confirmation that the margin expansion story is back on track. In this scenario, the 14% discount from the May high closes quickly.

Base Case

Walmart delivers Q2 results within its own guidance: net sales up 4% to 5%, operating income up 7% to 9%, EPS near $0.73 to $0.74. Advertising growth comes in between 28% and 35%, showing orderly deceleration from 37%. Full-year guidance is reaffirmed without a raise. The stock moves modestly in the direction of the result but does not break out of its $108 to $120 range. Patient investors who understand the transformation thesis hold through the noise and wait for the Q3 advertising acceleration that would follow a Sparky monetization ramp. This is the most likely outcome, and it is neither exciting nor alarming. It is a quality business executing within its own expectations.

Bear Case

Home Depot and Target both disappoint earlier in the week, creating a hostile consumer sentiment backdrop heading into Thursday. Walmart delivers advertising growth below 25%, U.S. comp sales below 3.5%, and operating income growth near the low end of guidance or below it. Management acknowledges that fuel costs were worse in Q2 than Q1, as CFO Rainey had warned was possible on the Q1 call. The full-year guidance is maintained but without the conviction that would support the current multiple. The stock breaks below $108, retests the July low near $106.79, and forces a re-examination of whether the premium valuation remains justified. In this scenario, the stock is not cheap at $116. It may not be cheap at $105 either, depending on how much advertising growth decelerates.

The Cheap Investor Scorecard

Action Plan: Buy, Hold, or Wait?

The Cheap Investor framework is clear on one point: a business is not a bargain simply because it has fallen. The question is whether the decline has created a gap between price and value. For WMT, the honest answer is conditional.

If you already own WMT: Hold. The business quality case has not deteriorated. The Q1 fuel headwind was real but management-described as temporary. A guidance-within-range Q2 result does not impair the thesis. The thesis is that advertising and marketplace compounding eventually forces a re-rating of how the market values Walmart’s income statement mix. That thesis is intact and unlikely to resolve in a single quarter.

If you are considering a new position: Wait for Thursday’s result before committing capital. The range of outcomes is wide. A guidance raise from management, specifically an increase to the $2.75 to $2.85 FY2027 EPS range, would confirm that the margin thesis is ahead of schedule. That is a better entry point than today. A result at the low end of Q2 guidance with no raise would push the stock toward $108 to $110 and create a more compelling risk-reward entry for patient buyers.

Scale-in framework: For long-term oriented investors, consider a two-tranche approach. A starter position now at $115 to $116, sized at 40% to 50% of a full position, captures upside from a Thursday beat without full exposure to a downside reaction. The second tranche goes to work at $108 to $110 if the stock pulls back on a within-range but uninspiring result. At that level, the forward earnings multiple compresses toward the low-to-mid 30s on FY2028 estimates, which begins to look more reasonable for a business generating $6 billion-plus in high-margin advertising revenue.

What would change the thesis entirely: Advertising growth decelerating below 20% in Q2, combined with a reduction to full-year guidance and a management tone suggesting the July consumer softness has spread into staples rather than remaining concentrated in discretionary categories. That combination would indicate the premium multiple is not justified by the underlying growth. It has not happened yet. Watch for it Thursday.

Cheap Investor Checklist: What to Watch Thursday

• Operating income growth versus the 7% to 10% guidance range: A result at or above 9% would confirm the Q1 fuel headwind was the low point as management predicted. Below 7% would raise the risk of a full-year guidance reduction.
• Global advertising revenue growth rate: Above 35% is a green light. Between 28% and 35% is orderly deceleration that preserves the thesis. Below 25% signals something structural has changed in marketplace advertiser engagement or Sparky monetization momentum.
• U.S. comparable sales versus 3.5% threshold: Above 3.5% closes the Cleveland Research July slowdown concern. Below 3.0% reopens it and creates a more skeptical market environment for the FY2027 outlook.
• Full-year FY2027 EPS guidance: Any revision above the current $2.85 ceiling is the most bullish single data point in the release and would likely push the stock above $120. A reduction below $2.75 would reprice the stock meaningfully lower.
• Fuel cost commentary from CFO Rainey: On Q1, he warned that Q2 fuel costs could be larger than the $175 million Q1 headwind. If Q2 fuel headwinds exceeded Q1, watch for that language. If the headwind moderated, Q3 operating income guidance would improve.
• Sparky metrics: Any sequential data on weekly active users, average order value, or monetization progress. Not a revenue line item yet, but the narrative around trajectory matters for long-term investors assessing whether the AI commerce transformation is compounding.
• Inventory at $62.6 billion: An 8.9% year-over-year increase in Q1. Watch whether Q2 shows normalization or continued build. Elevated inventory heading into the back half requires either demand to absorb it or markdowns that would pressure gross margins.
• Sector read from HD and TGT: Home Depot (August 18) and Target (August 19) set the sentiment context. Two comp misses from those two earlier in the week would create a more hostile backdrop for Walmart’s Thursday open regardless of Walmart’s own result.

Bottom Line

Walmart is not cheap in the traditional sense. At roughly 40 times forward earnings, 23% above its ten-year average multiple and nearly three times the sector median, WMT requires the advertising and marketplace businesses to compound at sustained double-digit growth rates simply to justify sitting still. That is a high bar, and the July consumer data, the fuel cost overhang, and the absence of a Q1 guidance raise are legitimate reasons for the 14% pullback from the May high.

But here is what the market may be mispricing: the rate at which Walmart’s income statement is changing composition. A business where advertising and membership generate one-third of operating income, where an AI shopping agent lifts order values by 35%, and where marketplace growth has reached 50% quarterly rates is not the same business that spent a decade trading at 25 to 30 times earnings. The question is not whether Walmart deserves a premium. It is whether the current premium correctly reflects the pace of that transformation.

If Thursday’s result shows advertising growth holding above 30%, operating income growing toward the top of the guidance range, and management confident enough to raise full-year EPS guidance, the discount from the May high begins to close and the long-term thesis accelerates. If advertising decelerates sharply and guidance holds flat without conviction, the stock drifts toward $108 and a more patient entry materializes.

That is the conditional truth of this situation. Walmart is a great business. It is not obviously a cheap stock. Those two facts can coexist. The bargain hunter’s job is to wait until the facts create the gap that others are too impatient or too fearful to see. Thursday may not be that day. It may be the day that sets it up.

Stay disciplined. The market will give you a cleaner pitch eventually. Make sure your thesis is ready when it does.