Walmart (WMT) Builds a Higher-Margin AI and Advertising Engine. Why I’m Bullish

Walmart (WMT) is no longer just a retail giant. It is increasingly becoming a higher-margin artificial intelligence (AI) and advertising machine. The company still dominates discount retail, but the real story is how that scale is now being layered with digital advertising, membership, marketplace, fast delivery, and AI tools that are changing both customer behavior and profit mix. Even after the stock’s strong run, up more than 52% over the past 12 months, I still think Walmart has room to grow because its earnings model is getting structurally better, not just bigger. That’s why I’m bullish.

Walmart’s Profit Engine Is Changing

For years, Walmart was viewed as a low-margin volume business. That is still partly true in the core retail operation, but the company is now generating more revenue from higher-margin streams on top of that base. Advertising, membership, and third-party marketplaces are growing much faster than the underlying retail business, and that matters because these businesses are far more profitable.

In Fiscal 2026, Walmart’s global advertising revenue jumped 46% to nearly $6.4 billion. Management also noted that advertising and membership together are now contributing close to one-third of operating income. That is a major shift. Several analyst estimates suggest Walmart U.S. posted a 5.2% EBIT margin for the full year, but the retail-only business, excluding ads and membership, was closer to 4%. In other words, Walmart is increasingly using alternative profit streams to subsidize sharper pricing, deeper investment, and still expand margins.

That is why I think the market still underestimates Walmart’s earnings power. The company is not relying only on selling more groceries and household goods. It is building an ecosystem where retail traffic feeds higher-margin businesses, and those higher-margin businesses fund even stronger retail execution.

AI Is Becoming a Real Operating Advantage

Walmart’s AI story is not just about flashy demos. The company is embedding AI into the shopping experience, its advertising tools, and internal operations. Its consumer-facing AI assistant, Sparky, is already showing early signs of value. Management said about half of app users have engaged with Sparky, and those users are building baskets roughly 35% larger on average than non-Sparky users.

That is a meaningful number because it shows AI is already influencing transaction economics. If Sparky helps customers discover more items, plan trips better, or automate reorders, Walmart wins with larger baskets, better conversion, and deeper engagement. This is especially powerful because Walmart can connect AI directly to inventory, fulfillment, pricing, and delivery in a way many digital-first competitors cannot.

The company is also using AI on the enterprise side. Internal agents help associates, merchants, suppliers, and advertisers make faster decisions around assortment, pricing, demand forecasting, and workflow automation. Walmart has also partnered with OpenAI and Google’s (GOOGL) Gemini while continuing to build its own AI capabilities. I see this as important because it keeps Walmart at the forefront of agentic commerce rather than reacting later.

Advertising Is Quietly Becoming a Star Business

Walmart Connect may be one of the most important parts of the bull case. Retail media is already one of the highest-margin businesses in retail, and Walmart has a natural advantage because of its first-party shopper data, massive store traffic, and growing digital ecosystem. It can offer advertisers closed-loop measurement, which means brands can see whether an ad actually led to a purchase.

That makes Walmart’s ad inventory highly valuable, especially as more shoppers use digital tools, same-day delivery, and app-based shopping. The company is now testing sponsored experiences within Sparky as well, which could eventually create an AI-native advertising surface tied to very high purchase intent. If that works, Walmart’s ad business may become even more strategic.

The key point here is that advertising does not just add revenue. It improves e-commerce profitability. That matters because one of the old concerns around Walmart was that digital growth would dilute margins. Increasingly, the opposite is happening: e-commerce growth is being paired with advertising monetization, marketplace fees, and membership revenue that can lift overall profitability.

Convenience and Higher-Income Shoppers Are Adding Fuel

Another reason I stay bullish is that Walmart is pulling in more affluent households without losing its core value identity. Management said higher-income consumers continue to be the primary growth driver, while lower- and middle-income shoppers remain under pressure. That is a favorable mix shift because it expands Walmart’s addressable market.

Walmart’s delivery reach helps a lot here. The company can deliver in three hours or less to more than 95% of U.S. households, and expedited deliveries now represent about 35% of store-fulfilled orders. E-commerce in the U.S. grew 27% in the latest quarter and now represents roughly 23% of sales. This gives Walmart an easier on-ramp for customers who may not have historically shopped there as often.

The Valuation Is Rich, but the Premium Is Justified

There is no point pretending Walmart looks cheap on traditional metrics. The stock trades at about 43.4x earnings versus a sector median of around 15, and about 24.1x operating cash flow versus a sector median of near 11. 

On the surface, that looks expensive. However, I think the market is paying for a business that is becoming structurally different from a normal retailer. Walmart is increasingly a part retailer, media platform, membership model, logistics network, and AI-enabled commerce layer. Businesses with that kind of recurring, data-rich, high-margin mix usually deserve a premium.

Wall Street’s View

According to TipRanks, the average rating on WMT is Strong Buy, with 27 Buy, two Hold, and no Sell ratings. Based on 29 Wall Street analysts offering 12-month price targets for Walmart, the average price target is $138.92, implying about 13.41% upside from the last price of $122.49.

Conclusion

I am bullish on Walmart because this is no longer just a low-margin retailer grinding out modest growth. It is becoming a much more powerful platform business, where AI, advertising, membership, delivery, and marketplace all reinforce each other. Those higher-margin businesses are not only boosting profits directly but also giving Walmart more room to invest, widen price gaps, and keep taking share.

Yes, the valuation is elevated. However, Walmart is earning that premium by building a stronger and more durable business model. With Sparky already lifting basket sizes, Walmart Connect scaling fast, and alternative revenue streams becoming a much larger share of profit, I think the company still has more upside ahead.