The 31-year-old had little answer to the consistent speed and accuracy demonstrated by Floyd Mayweather's protege and was knocked down in the third round by a hurtful left hand.
He returned to his feet after a count of nine but remained unsteady and unable to defend himself amid Davis' next assault, forcing referee Michael Alexander to end the fight despite his protests.
As well as his first world-title fight, Walsh lost for the first time as a professional, but he has long appeared ready for world level even if an opponent of Davis' class proved beyond him.
Much of Warren's reputation owes to his ability to match his fighters, and he cited his work in rebuilding Amir Khan's reputation after his first defeat as reason to believe Walsh will return.
"It wasn't as bad as when Amir Khan got knocked out (in 2008 by Breidis Prescott) in the first round and got done," said Warren. "He wasn't bashed up, was he? He just got caught and that was it.
"He was disappointed the referee stopped it; he felt he stopped it prematurely, but that's boxing.
"Liam should take a break, it's not like he took a hiding or anything; he got caught with good shots. He's a quality figher, he got his tactics wrong. He was doing a lot of feinting; he should have been letting his shots go, but it didn't happen. He'll come again.
"When guys come over here, have got the crowd against them, you've got to jump on them at the start, but they had their tactics, I think to come good in the second half of the fight. With me in these fights every round should be the last. You go out to win every round, can't give nothing away.
"(Davis) certainly looks a better fighter than I thought he was; there's no doubt about that. He's a quality fighter, came into the lion's den, wasn't fazed, and all those things say a lot about a fighter.
"To come over and do what he did; you've got to take all that into account, and he's a young man. He'll get involved in some seriously big fights down the road."
America's Davis, 22, further his reputation as a fighter of potentially the highest calibre with his latest clinical performance.
His promoter and mentor Mayweather – expected to return later this year to fight Conor McGregor – insists "he's not even 100 per cent", and his influence could be seen in the way Davis spoke to Walsh during their fight.
"I was telling him 'He's too slow'," said Davis, from Baltimore. "I took my time, I thought he was going to hold up a few rounds. I fed off the crowd."
The 40-year-old Mayweather added: "He has to be one of the most exciting boxers.
"He's not even 100 percent, he can only get better. Now you're the main event and the main attraction. We have to take our time.
"We're not going to rush him. Everything is a process, he's still young and learning."
