Tariffs vs AI: what will determine Walmart stock price trajectory after Q2 earnings?

Walmart Inc. (WMT) is anticipated to report robust Q2 earnings on August 21st, with expected revenue of $174 billion and EPS of $0.74, following a 25% stock rally since April. While the retailer has largely navigated initial tariff impacts, with Mizuho projecting 4.0% same-store sales growth, future quarters may see increased gross margin volatility as costs are passed to consumers, though its diversified product mix offers a buffer. Investors will closely watch updates on AI investments, which Mizuho identifies as a key catalyst for e-commerce expansion, operational efficiencies, and customer engagement, supporting their 'outperform' rating and $115 price target, highlighting confidence in Walmart's capacity to absorb cost pressures and drive future growth.

Analysis

Walmart's stock is exhibiting strong upward momentum, having rallied 25% since its April low, ahead of its Q2 earnings release which is expected to show revenue growth to approximately $174 billion from $168 billion year-over-year. The primary focus for investors is bifurcated between two key issues: the impact of tariffs and the potential of artificial intelligence. According to Mizuho analysis, Walmart has successfully navigated initial tariff pressures, with same-store sales growth projected at a solid 4.0% for Q2. However, risks of gross margin volatility are expected to increase in subsequent quarters as the retailer may need to pass on rising costs to consumers. Mitigating these risks are the company's diversified product mix and strong value proposition. On a forward-looking basis, the company's investments in AI are positioned as a significant long-term catalyst, with the potential to drive efficiencies in logistics, inventory management, and e-commerce personalization. Mizuho maintains an "outperform" rating with a $115 price target, signaling confidence in Walmart's ability to absorb cost pressures while leveraging technology for future growth.

Key Decisions for Investors

• Investors should closely monitor the upcoming earnings call for management's specific guidance on gross margin trajectory given tariff impacts and for any quantifiable updates on its AI strategy, which is a key potential catalyst.
• It is crucial to weigh the near-term risk of margin compression from inflationary pressures against the long-term growth potential from AI-driven efficiencies and market share gains.
• Given the stock's significant 25% rally since April, investors should be mindful that high expectations may already be priced in, making the stock sensitive to any disappointments in the earnings report or forward guidance.