Walmart’s Slowdown Spotlights Amazon’s Strength

This was not the day to be a Walmart shareholder. Stock of the venerable retailer tumbled 9% after the company reported a dip in comparable sales for its U.S. stores in its fiscal second quarter ending July, even as the e-commerce part of its business grew 23%. The results were fine, really, although there’s no getting around the fact that Walmart is a mature business whose top line is expanding only around 5% annually, even with the boost provided by e-commerce and advertising.

What the results really pointed to is how well Amazon is doing in retailing, comparatively speaking. That’s easy to overlook, given how much attention its cloud unit, Amazon Web Services, gets on Wall Street, particularly now that AI has made cloud even more important to the tech sector. If you exclude AWS from the equation, Amazon’s retailing and associated businesses—including advertising—are growing at 14% to 15% annually. That’s not the rocket-ship growth tech companies usually expect, but it’s decent for a 30-year-old business. And it’s three times Walmart’s growth rate.

Comparing the topline growth of Amazon and Walmart in retailing is a little unfair, of course, as old-fashioned bricks-and-mortar stores account for more than 75% of Walmart’s $700 billion–odd annual revenue but less than 4% of Amazon’s retail revenue. Walmart is growing faster than Amazon in e-commerce, where Walmart is the newcomer. What's striking is that their relative growth rates in ecommerce aren’t as far apart as you might think, given that Amazon is more mature in online shopping. It generates more than three times as much revenue in that business, including advertising, as Walmart.

Excluding Amazon’s small physical store business (mostly Whole Foods), its retail business globally grew 16.3% in the second quarter and 14.2% in the first (a shift in timing of its Prime Day shopping extravaganza from the third quarter to the second quarter provided a boost to the latest quarter). That compares with Walmart's 23% e-commerce growth in its second quarter and 26% in its first quarter.

If Walmart and Amazon maintain those growth rates, Walmart could draw even with Amazon in online retailing one day, although it would take many years. But it’s unlikely their growth rates will stay as they are now. Walmart’s commerce growth rate is likely to slow as it gets bigger, converging with Amazon’s.

Meanwhile, Amazon has a lot of momentum in areas like advertising, where its Prime Video business is likely to become a powerhouse. Walmart is growing a bit faster in advertising, to be sure, but it’s much smaller, despite buying businesses like Vizio TV to beef up its presence. But given its lack of a streaming business like Prime Video, and its smaller retail marketplace, it’s hard to see Walmart catching up on the ad front. Amazon’s edge in retail perhaps deserves more attention from investors.

AI’s Crowding-Out Effect

Economists like to talk about the danger that government borrowing will crowd out private sector activity. You could make the argument today that AI-related fundraising is crowding out everything else!

Today’s headlines, for instance, include a Bloomberg report that Anthropic expects to match or beat the $86 billion SpaceX raised in its June IPO. Bloomberg also reported that Broadcom is discussing borrowing more than $60 billion for a chip financing deal. Nvidia last week announced a $500 billion–plus fundraising effort with a group of private equity firms. And of course the neocloud firms, such as Nebius, keep raising money, while big tech companies like Google are doing the same.

All of this is having an effect on the market. As The New York Times pointed out today, one reason government bond yields have hit 20-year highs this week is because of borrowing by AI firms. AI is already unpopular with the general public, largely because of people’s dislike for having data centers located near them. The fact that AI is driving up electricity costs, phone prices and now interest rates won’t improve those sentiments.