Wall Street’s attention on Big Tech’s AI spending may be missing a crucial story: the retail sector is poised for a massive AI-driven transformation, according to a new Morgan Stanley analysis. While tech giants like Microsoft, Amazon, Google, and Meta have announced a combined $300 billion in AI investments for 2025, the ripple effects are creating unprecedented opportunities for major retailers.
Morgan Stanley equity analyst Simeon Gutman argues that retail is “on the cusp of a technology leap with AI, data, and automation.” The firm projects that capital expenditures among retailers will reach $55 billion in 2025, representing approximately 7% year-over-year growth. This spending wave will enable big-box stores to enhance in-store experiences, improve advertising capabilities, and advance automation initiatives.
Walmart emerges as the clear leader in this retail AI race, with an estimated $22 billion in capex spending planned for 2025—four times larger than Costco’s projected expenditures. The retail giant, along with Costco, Target, Kroger, and Home Depot, accounts for roughly 69% of total spending across hard goods, soft goods, and food retail sectors. Bank of America has set a $110 price target for Walmart stock, citing expectations for improved profitability alongside digital advertising and marketplace growth.
Morgan Stanley’s thesis suggests that retailers with deeper pockets will gain market share advantages, with “the big getting bigger and at a faster pace.” The AI infrastructure investments by tech hyperscalers are creating a technology inflection point that well-capitalized retailers can leverage to pull ahead of smaller competitors.
However, a potential wildcard has emerged: DeepSeek, a Chinese AI model that claims to offer comparable capabilities to Silicon Valley alternatives at significantly lower costs. The introduction of DeepSeek briefly triggered a trillion-dollar market wipeout last month, raising questions about whether cheaper AI could democratize access and allow smaller retailers to compete more effectively. If AI costs decline substantially, both under-the-radar retail names and software stocks could benefit. Despite this possibility, Gutman maintains that “in the near-term” retailers best equipped to spend will continue widening their competitive advantages.
Key Quotes
Retail is on the cusp of a technology leap with AI, data, and automation. While retailers may not pursue AI infrastructure investments similar to tech companies, the tech capex boom suggests retailers are on the verge of and should benefit from a technology inflection.
Morgan Stanley equity analyst Simeon Gutman explains how Big Tech’s AI infrastructure spending creates opportunities for retailers to leverage new technologies without making comparable infrastructure investments themselves.
The big should keep getting bigger and at a faster pace.
Morgan Stanley analysts describe their expectation that well-capitalized retailers like Walmart will use AI investments to accelerate market share gains, potentially widening the competitive gap with smaller players.
That said, we do not think this will be the case in the near-term and, for now, retailers best equipped to spend should be able to widen their advantages.
Gutman addresses the DeepSeek challenge, acknowledging that cheaper AI could level the playing field but maintaining that capital-rich retailers will maintain their advantages in the immediate future.
Our Take
This analysis highlights a crucial but underappreciated AI investment theme: the technology’s impact extends far beyond its creators into capital-intensive traditional industries. Morgan Stanley’s focus on retail capex as an AI play demonstrates how AI is becoming infrastructure rather than innovation—a utility that reshapes competitive dynamics across sectors.
The Walmart versus DeepSeek tension encapsulates the central question facing AI economics: will scale and capital determine winners, or will technological democratization create more competitive markets? The $22 billion Walmart is investing suggests the company is betting on the former, but DeepSeek’s emergence proves the latter remains possible.
What’s particularly notable is the 7% year-over-year growth projection—modest by tech standards but significant for retail, suggesting AI adoption is becoming normalized rather than experimental. This marks AI’s transition from hype cycle to operational reality in traditional business sectors.
Why This Matters
This analysis reveals a critical but overlooked dimension of the AI investment boom: its cascading impact beyond Big Tech into traditional retail sectors. The projected $55 billion in retail AI spending represents a fundamental shift in how major retailers compete, potentially reshaping the entire industry landscape.
The concentration of spending among retail giants signals an acceleration of market consolidation, where technology capabilities become as important as traditional retail fundamentals. Walmart’s $22 billion investment alone demonstrates how AI is transitioning from experimental to mission-critical for retail operations.
The DeepSeek variable introduces significant uncertainty into this narrative. If cheaper AI models prove viable, they could democratize access and prevent the “winner-take-all” scenario Morgan Stanley predicts. This tension between concentrated capital advantages and potentially democratized AI access will define the retail sector’s evolution over the coming years, with implications for employment, consumer choice, and competitive dynamics across the entire industry.
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