Retail Stocks Overlooked as Beneficiaries of AI Investment Boom, Says Morgan Stanley
Amidst the ongoing capital expenditure plans by Big Tech, Morgan Stanley highlights the overlooked potential for retail stocks to thrive from AI investments.
Tailwind for Retailers
The "hyperscalers" race in AI spending is seen as an impetus for retail giants like Walmart and Target, according to Morgan Stanley. While retailers may not invest directly in AI infrastructure, the tech capex boom positions them to embrace technological advancements.
"Retailers are on the cusp of a technology leap... retailers are on the verge of and should benefit from a technology inflection," said equity analyst Simeon Gutman.
Boost in Capex
The combined $300 billion in AI investments announced by Microsoft, Amazon, Google, and Meta may not directly impact retailers, but Morgan Stanley anticipates that it could lead to increased capex among those retailers with the capacity.
This spending surge provides oportunidades for big-box stores to enhance in-store experiences, advertising, and automation. Those with the resources to invest are expected to gain market share, a trend likely to manifest in upcoming earnings reports.
Capital Expenditures and Target Markets
Retailer capital expenditures are projected to reach $55 billion, indicating approximately 7% year-on-year growth by 2025. Walmart, Costco, Target, Kroger, and Home Depot account for almost 69% of total spending across hard, soft, and food retail.
Walmart is positioned as the leader, with an estimated $22 billion in capex spending this year, dwarfing Costco's projected expenditures.
Challenges and Opportunities
Gutman's thesis could face a challenge if inexpensive AI solutions like DeepSeek enable smaller retailers to participate in AI growth. However, Morgan Stanley remains optimistic that retailers best positioned to invest will be able to extend their advantages in the near term.