So far, 2023 has been an exceptional year for those investing in software stocks. Most companies operating in the technology sector have seen their valuations surge, as investor confidence returns to higher-growth segments of the market.
Unless you live under a rock, you've likely noticed that artificial intelligence (AI) is finding its way into a lot of investment news lately. The first things that come to mind when I think of AI are The Jetsons' robot housekeeper and HAL 9000 from 2001: A Space Odyssey. But in
Since the start of 2022, investing on Wall Street has been nothing short of an adventure. All three major U.S. stock indexes have, at some point, entered a bear market, with the Dow Jones Industrial Average, S&P 500, and Nasdaq Composite producing their worst full-year return
Stocks are back on the retreat, thanks in part to recent hawkish talk from the Federal Reserve and the SVB Financial (
NASDAQ:SIVB
)
collapse. As the economy worsens, top retail giants may be unable to escape the earnings pull from interest rate increases.
Nonetheless, Wall Street is still upbeat when it comes to the following two retailers. Each firm has navigated through inflation challenges and macro headwinds for well over a year now.
Even as they stare down a recession, Wall Street analysts expect positive returns from each stock for the year ahead. Both companies offer customers a perfect mix of value and convenience, making them tough to compete against as the economic tides go out.
Therefore, let's look at both stocks -- AMZN and WMT -- using
TipRanks' Comparison Tool to see how they stack up in this uncertain environment.
Amazon (
NASDAQ:AMZN)
The e-commerce and public cloud juggernaut has taken a big hit to the chin amid the broader market sell-off. It's still hard to believe that such a blue chip could shed
more than 50% of its value. The sell-off was thanks to untimely expansion investments and broader macro headwinds. Still, I remain bullish.
In the
latest quarter (Q4), there was hope, as strength in e-commerce helped power 12% in constant-currency top-line growth, and Amazon topped its own guidance with $149.2 billion in sales. As e-commerce recovered, AWS (Amazon Web Services) saw growth slow to 20%, thanks in part to macro headwinds. Management also stated that AWS saw growth sink to the mid-teens for January.
Undoubtedly, AWS growth deceleration may be a cause for concern for some, and management noted that sales growth in AWS could continue to remain slow for the next few quarters.
Looking beyond macro headwinds, though, AWS growth (Amazon's main earnings engine) seems likely to pick up where it left off. The segment continues to sport healthy customer additions as the firm looks to help its enterprise clients save money in the face of a potential recession.
On the retail side, CEO Andy Jassy attributed robust retail numbers to Amazon's "relentless focus on providing the broadest selection, exceptional value, and fast delivery."
The value factor, in particular, could help separate Amazon from the crowd as consumers look to take advantage of any savings opportunities. Amazon makes it all too convenient to save on a wide range of necessities, which should help it weather another few quarters of an economic storm.
Also, even as Amazon leans out, the company is expected to continue innovating and disrupting. Automation robotics and fulfillment-as-a-service (through Buy with Prime) are advancements that could prove disruptive and raise the bar on margins through the next decade.
What is the Price Target for AMZN Stock?
Wall Street has a "Strong Buy" on the name, with 36 Buys and just one Sell. The
average AMZN stock price target of $137.05 implies 48.3% upside potential.
Walmart (
NYSE:WMT)
Walmart is an old-time retailer that's done a good job of catching up with the digital age while persevering through a year of headwinds. Although
WMT stock is down 3% over the past year, I am bullish.
Few retailers can stack up with the magnitude of savings offered by Walmart. Amid inflation and macro headwinds, customers have marched down to the local Walmart in search of savings. As the recession storm worsens, I'd look for foot traffic to improve further, and Walmart+ may be the service that keeps the new wave of customers coming back, even after a recession comes to pass.
The company's Walmart+ service offers its loyal subscribers added convenience and value. According to Morgan Stanley (
NYSE:MS
), the service is estimated to boast around 18.4 million members. The bank believes the service could grow considerably from here, with a TAM (total addressable market) projected to be in the 30 million member range.
Though the Walmart+ service still has a ways to go to catch up with Amazon Prime, the company is on steady footing, as supply-chain investments and tech bets should help Walmart fare well through and after a downturn.
Currently, the stock trades at a
32 times trailing earnings multiple, which is on the higher side of the historical range. Regardless, Walmart's defensive traits and solid growth profile make it well worth the high price of admission.
What is the Price Target for WMT Stock?
Wall Street has a "Strong Buy" on the retailer, with 21 Buys and four Holds. The
average WMT stock price target of $163.38 implies 18.9% upside potential.
The Takeaway
Retail is a tough sector to be in right now, but Amazon and Walmart are using their size to their advantage. Therefore, it's not a mystery why Wall Street praises each name, even with macro headwinds unlikely to dissipate anytime soon. Both firms have impressed, given the circumstances. Between the two names, however, analysts expect more gains (48.3% vs. 18.9%) from Amazon stock.
Disclosure
Amazon (AMZN) closed the most recent trading day at $92.43, moving +1.87% from the previous trading session. This change outpaced the S&P 500's 0.15% loss on the day. Elsewhere, the Dow lost 0.28%, while the tech-heavy Nasdaq added 3.16%.
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