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Welcome back to the Rundown for another weekend deep dive. Today we are talking about Walmart. Walmart has been one of the best performing retail stocks in the market. And the company recently crossed the 1 trillion dollar market cap for the first time ever. So in today's episode, we'll break down how Walmart went from a dinosaur brick and mortar retailer to an absolute digital powerhouse and a legit competitor to Amazon. We'll dive into the numbers behind the transformation and some of the challenges they face moving forward, including a new ce. Yo, we got a great one for you today. Let's dive in now. To understand where Walmart is today, you have to go back to 2014 and honestly, things were not looking great for them at the time. Amazon was absolutely torching the retail industry. Online shopping was exploding and Walmart, which had spent decades dominating the giant physical stores, suddenly looked like a dinosaur. They had very little E commerce presence at the time and their same store sales were declining. That's when Walmart's board made a bet on a Guy name Doug McMillan. He took over as CEO in February of 2014. Now McMillan is a Walmart lifer. He started working at Walmart as a teenager in the 1980s, unloading trucks at an Arkansas warehouse. And he literally worked his way up from the warehouse floor to becoming the CEO of the company. And when he took over, he focused on modernizing Walmart. He doubled down on E commerce by acquiring a company called Jet.com for $3 billion in 2016. A lot of people at the time thought that was an overpay. And while Jet.com didn't really work out, it brought E commerce talent into Walmart. Jet.com founder Marc Lori ran Walmart's E commerce business and turned it into a fast growing business that it is today. But beyond the Jet.com acquisition, CEO Doug McMillan also invested billions of dollars in making Walmart supply chain automated and tech driven. He also launched Walmart plus, which was their answer to Amazon prime, which is estimated to have over 25 million subscribers today. But I think the best decision that he made was, was leveraging Walmart's physical stores. A fun fact. 90% of Americans live within 10 miles of a Walmart. So Doug McMillan spent billions of dollars to transform those 5,000 plus stores in the US into hyper efficient distribution hubs to fulfill online orders. And by doing that, that allowed Walmart to deliver orders within hours, not days, including groceries. Walmart's footprint became a competitive advantage compared to Amazon, which lacked physical stores. I'll be honest with you guys, I subscribe to Walmart plus and I groceries delivered from them weekly. They're not paying me to say this, but if someone from Walmart is listening, my DMs are open. So yeah, all that investment that Walmart made over the last decade in their E commerce business and technology and improving their supply chain, it's all starting to pay off. During Doug McMillan's tenure as CEO, e commerce sales went from about $10 billion in 2014 to over $150 billion in 2025. And that's not the only impressive stuff about Walmart's business. So let's dive into the numbers. Walmart stock has outperformed The S&P 500 and other major retailers over the past year. And what's impressive is this is happening during a bull market driven by AI hype and semiconductors and data centers. Yet it's Walmart catching the attention of investors trading at historically high valuations. So let's take a closer look at their business and why that might be happening. The company just reported their earnings and in 2025 revenue was up 4.7% to $713 billion. E commerce was the bright spot. It grew by 23% in Q4 globally and 27% here in the U.S. in fact, it was the eighth consecutive quarter of e commerce growth above 20%. And here's the detail that really jumped out to me. 35% of store fulfilled orders were delivered in under three hours. In fact, the US customers using the fast delivery option, which is deliveries under three hours or less, grew by more than 60% in a year. I mean, that's the competitive advantage that Walmart has of being within 10 miles of 90% of the US population. And the other benefit from offering fast deliveries is that Walmart has attracted wealthier shoppers who prioritize convenience. But I think what's really caught investors attention is Walmart's margin expansion. You know, selling groceries isn't really a high margin business, but Walmart's operating profits have been growing faster than revenue, which means that Walmart is getting more profitable. And that's thanks to three main reasons. First is advertising. Walmart's ad revenue was up 46% to $6.4 billion in 2025. Now that might be surprising to a lot of people, but Walmart is sort of becoming an ad company as more and more people shop on Walmart's website and app that allows Walmart to serve more ads. You know, every time someone looks up a product on Walmart's app or website, the first two or three results are sponsored. Brands pay Walmart for that top placement in the search results. And that is a high margin business. I'm talking like 70% margins. So the growth in the ad business is contributing more to Walmart's operating profits. Walmart also recently bought Vizio, the smart TV maker. So that will let them run ads directly into people's living rooms and I guess collect all the data that you're watching on tv, which is very creepy. But that's what pretty much every company does at this point. Now, the second reason for Walmart's improved margins is automation and inventory efficiency. Walmart is now using AI to better manage inventory. Inventory only increased 2.6% in 2025, which was half the rate of their sales growth. That means that Walmar Walmart is getting better at managing inventory, which helps them save on storage costs. They're also automating their supply chains and their warehouses to save on labor costs. That efficiency is resulting in better margins for Walmart. And finally, the third driver of higher margins is membership revenue. Now on top of Walmart, plus Walmart also owns Sam's Club, which some people say is better than Costco. Now personally, I'm a Costco guy. I haven't been to Sam's Club in so long. But a lot of people I know prefer Sam's over Costco. If you guys have any thoughts on that, let me know in the comments. But yeah, memberships is a growing business for Walmart. They generated $4.3 billion in membership revenue in 2025, which was up 15% from 2024. And again, that's pure margin right there. So when you put it all together, Walmart has a booming ads business, tighter inventory control, more automation in their warehouses, and a sticky membership revenue. You understand why operating income is growing faster than sales. And the cherry on top for investors might be that Walmart is now embracing AI commerce. Walmart recently announced a partnership with OpenAI that allows ChatGPT to buy stuff from Walmart directly inside Chat GPT. So the company continues to innovate. In fact, Walmart wants investors to treat it like a tech company. You know, in December, Walmart actually switched their stock listing from the New York Stock Exchange to the Nasdaq and they were added to the NASDAQ 100 index, which is an index historically dominated by tech companies. But look, Walmart does face some challenges moving forward. So let's talk about that. Up until this point, I've just been hyping up Walmart. So let's talk about what could go wrong? Because there are some risks. First up, you have tariffs and economic uncertainty. Roughly a third of the products that Walmart sells in the US Are made or grown internationally, mainly in China and Mexico. And while Walmart has incredible leverage to shift the burden of tariffs onto its suppliers, it's still a very fluid situation. Like as I'm recording this, the Supreme Court struck down some of President Trump's tariffs. But in a press conference earlier today, he said he plans to impose other tariffs to make up for the ones that were struck down by the Supreme Court. So again, all that's going to add uncertainty to Walmart's business. And the other uncertainty is the CEO transition. Doug McMillan stepped down as CEO on February 1st and handed the keys to John Furner. Now, Furner is an experienced guy and he spent over three decades at Walmart, most recently running the US Division. But he has big shoes to fill to make sure that Walmart carries this momentum into the next era while also navigating the constantly changing tariff landscape. So he's kind of stepping into a tough spot right now. The biggest risk that I see for Walmart though as an investor is is their valuation. Walmart is currently trading at 42 times forward earnings, which is the highest multiple ever for them. And even higher than fast growing tech companies like Nvidia and Google, which have a forward PE of 27 right now. You know, you can make the case that Walmart at its core is just a retailer, only growing revenues at 5% a year. So there might not be much upside left in the stock at its current valuation. So what's my take? Well, you guys might not believe me, but I was an early believer in Walmart. Now, once they started embracing technology a few years ago and I saw the improvements to their app and their E Commerce offerings, I became an investor. But even I'm starting to think the stock has gotten expensive trading at over 40 times forward earnings. Now, I think their business is solid. I like the growth in E Commerce. I like the improvements they're making to their supply chains for improving the efficiency. I like the fact that they're embracing AI. But at this current valuation, one bad quarter or a misstep by the new CEO could reprice the stock. I do want to point out though that Walmart is in such an interesting spot right now. Like it's somehow both seem seen as a tech company, but also as a defensive stock. 60% of Walmart sales are from groceries, which tends to be a stable business. People are going to have to keep buying groceries no matter what the economy is doing. In fact, consumers tend to shop at Walmart more during times of economic uncertainty or slowdown. So if there is an economic slowdown, Walmart is going to benefit from that. You add in all the uncertainty around potential AI disruption, the market seems to be putting a higher value on Walmart's core business as a retailer, because that's not going anywhere. At the same time, you get the upside in all the investments that Walmart is making in tech. Well, all right guys, that's it for today's weekend deep dive. Let me know in the comments on Spotify and YouTube if you're buying into Walmart's tech transformation or if you think the stock is just completely overvalued. And while you're at it, don't forget to hit us with a five star rating and leave us a review. All that engagement really does help us out and it helps other people find the show. Thank you guys so much for listening, watching and commenting. Shout out to Mike and Connor for all the work behind the scenes and we'll see you guys back here tomorrow.