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Alibaba and Walmart: A Tale of Two Stocks – One to Buy, One to Sell This Week

Samuel ReedSunday, May 11, 2025 2:08 pm ET

8min read

As investors gear up for a pivotal week of corporate earnings and macroeconomic data releases, two retail giants—Alibaba (NYSE: BABA) and Walmart (NYSE: WMT)—are under the microscope. While both companies report earnings on May 15, their trajectories diverge sharply. Alibaba, fueled by AI-driven growth and strong fundamentals, emerges as a stock to buy, while Walmart, grappling with margin pressures and overvaluation, is a stock to sell. Here’s why.

Alibaba: A Buy Amid AI Momentum and Earnings Catalysts

Alibaba’s stock is primed for a positive earnings surprise this week. Analysts project a 24% year-over-year jump in adjusted EPS to ¥12.81 ($1.73) for its March-ended quarter, with revenue rising 8% to ¥240 billion ($32.9 billion). This follows five consecutive quarters of accelerating profit growth, driven by its cloud business and AI innovations.

Key Catalysts:
- AI-Driven Growth: Alibaba’s cloud division has seen triple-digit quarterly revenue growth in AI-related products for six straight quarters, underpinned by its proprietary AI models, which now rival global leaders like DeepSeek. The unveiling of a new AI tool in January 2025 has further boosted its competitive edge.
- Strong Financial Health: Rated “GREAT” by InvestingPro’s quantitative models, Alibaba boasts an overall score of 3.11, reflecting robust profit margins, healthy cash flow, and a clean balance sheet.
- Trade Optimism: Positive signals from U.S.-China trade talks—scheduled for the weekend before earnings—could ease tariff concerns, benefiting its cross-border e-commerce operations.

Despite a recent dip below its 50-day moving average, Alibaba’s stock has surged 47.8% year-to-date, outpacing broader markets. Analysts predict a 5.9% post-earnings price move, with upward revisions in profit estimates (10 upgrades vs. 3 downgrades) signaling confidence in its turnaround.

Walmart: A Sell as Profit Pressures Mount

Walmart, on the other hand, faces a challenging week. Analysts expect its first-quarter earnings to decline 3.3% to $0.58 per share, with revenue of $164.5 billion. All 24 analysts covering the stock have cut their estimates in the lead-up to the report, citing rising expenses, unfavorable product mixes, and shifting consumer behavior.

Key Risks:
- Margin Squeeze: Input costs, including tariffs and supply chain adjustments, are squeezing profitability. Management has signaled wider outcome ranges for Q1 operating income, hinting at potential volatility in results.
- Overvaluation Concerns: Despite a 7% YTD gain, InvestingPro’s Fair Value model deems Walmart “extremely overvalued”, with a potential downside of -26% to $72/share. Its $774 billion market cap faces scrutiny amid weak fundamentals.
- Macroeconomic Headwinds: Elevated inflation and a slowdown in discretionary spending are testing Walmart’s ability to retain lower- and middle-income consumers.

Options markets price in a 6% implied volatility post-earnings, higher than typical levels, reflecting skepticism about its guidance.

Broader Context: CPI Data and Fed Policy Add to the Mix

The week’s April CPI inflation report (released May 13) and retail sales data (May 15) will further influence both stocks. A softer CPI reading could ease Fed rate hike concerns, supporting Alibaba’s valuation. Conversely, Walmart’s results will hinge on whether retail sales reflect resilient consumer demand or inflation-driven weakness.

Fed Chair Jerome Powell’s remarks on May 15 will also be pivotal. An 85% probability of no rate changes at the June meeting as of now could stabilize markets, but persistent inflation risks could pressure retailers like Walmart.

Conclusion: Alibaba to Buy, Walmart to Sell – Here’s Why

Alibaba is a buy due to its AI-driven growth tailwinds, strong earnings momentum, and a “GREAT” financial health rating. With upward revisions in estimates and a potential 5.9% post-earnings pop, investors should capitalize on this tech leader’s ascent.

Walmart is a sell because of its overvalued stock, deteriorating profit trends, and vulnerability to macroeconomic pressures. With all analysts downgrading estimates and a 26% downside risk, the retail giant’s challenges outweigh its YTD gains.

As the week unfolds, investors should monitor Alibaba’s AI progress and Walmart’s margin struggles while keeping an eye on inflation and trade developments. This divergence underscores the importance of sector-specific analysis in a volatile market.

Final Verdict:
- Alibaba (BABA): Buy – Strong fundamentals, AI leadership, and positive catalysts justify a long position.
- Walmart (WMT): Sell – Overvaluation, margin pressures, and macro risks make it a short-term caution.

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