TD Cowen analysts name Walmart (WMT) as "Best Idea for 2024," citing investments into e-commerce, digital advertising, and AI as securing the retailer's spot as "a new retail nexus."

Yahoo Finance Live discusses Walmart's outlook — which currently sits with an "Outperform" rating and a $188 price target from TD Cowen — for the new year.

For more expert insight and the latest market action, click here to watch this full episode of Yahoo Finance Live.

This post was written by Luke Carberry Mogan.

Video Transcript

[AUDIO LOGO] BRAD SMITH: TD Cowan names Walmart as Best Idea for 2024.

The firm rating the retail giant at Outperform saying, its e-commerce marketplace and digital advertising working alongside artificial intelligence will, quote, "drive a new retail nexus."

TD Cowen saying its leading private-label share gains better inventory management and higher income traffic.

Gains all contributing to its optimistic outlook.

The firm saying it views Walmart as a best-in-class retail tech leader here.

Summary of their thesis-- global retail ecosystem, powerful, about 4,700 US store reach, leading technology nexus of marketplace, digital advertising, artificial intelligence.

And they like the defensive characteristics of this.

And this points back to some of the other calls that we've heard on the Street of defense wins championships, as you were mentioning earlier on.

SEANA SMITH: Defense wins championships, like Evercore put out there for their outlook into next year.

And I think it applies to here.

When you take a look at Walmart, some of the trends that they are seeing.

The fact that so many consumers have been trading down for their goods, for their shopping over the last several months.

Walmart has stand to benefit.

We have seen that outperformance, especially when you compare Walmart's numbers to Target.

We know Target much more heavily relies on some of those consumer discretionary purchases, which has pressured Target in recent quarters.

Walmart has, pretty much by a wide margin, really been beating the Street's expectations much better than what we had initially anticipated in terms of the resilient consumer, and the consumer who is out there still spending.

They're choosing to do it in maybe a more budget-friendly type manner.

So they're making more trips here to Walmart.

But when it comes to some of those other reasons why Oliver Chen here at TD Cowen likes Walmart here, he talks a lot about their AI investments.

Their efforts surrounding generative AI, and what exactly that could potentially do in terms of securing and generating more data here for the company, and also just tailoring their content and their offerings in the future, just the edge that that could really give Walmart here over the coming years.

I think it's something that we're going to be hearing a little bit more about from other retailers in the coming quarters.

BRAD SMITH: I mean, they really look at everything within this, all the way down to people's hair lines.

They talk about company stores offering a variety of merchandise, grocery, household goods, electronics, health, wellness, hair lines.

They go on to say apparel and home products here.

And so across that kind of inventory mix, they're really leaning into that as part of the defensive play here.

You mentioned the AI investments.

And that will be priced in, perhaps, to some of, even the downside scenario that they have to get right.

And they say price investments increase and become increasingly more dilutive to gross margin as part of their downside scenario.

International and omnichannel underperforming expectations leading to margin concerns.

But at the same time, there's much more in the base case and upside scenario that this team is pointing out that leads them to be pointing towards Walmart as their top pick for 2023.

SEANA SMITH: Let's talk about the fact that Walmart has a very sticky ecosystem, which is going to help traffic growth here in 2024.