Amazon vs. Costco: Which Stock Is a Better Buy?

Core Insights - Amazon and Costco are both significant players in the e-commerce and retail sectors, but they are entering 2026 with different valuation multiples and growth trajectories [1][2] - Amazon's stock has decreased by approximately 14% recently due to a new capital spending plan, while Costco's stock has increased by 17% year-to-date, reflecting investor confidence in its stable business model [2] Amazon: Accelerating Growth and Heavy Spending - Amazon's Q4 results showed a 14% year-over-year increase in total net sales, reaching $213.4 billion, up from 13% growth in the previous quarter [5] - Amazon Web Services (AWS) experienced a 24% year-over-year revenue growth, totaling $35.6 billion, indicating a recovery from previous optimization headwinds [6] - Operating income for Amazon rose from $21.2 billion to $25 billion year-over-year, but future operating income may face challenges due to a planned $200 billion capital expenditure in 2026, significantly higher than the $131.8 billion spent in 2025 [7] - CEO Andy Jassy highlighted strong demand for AWS, particularly for AI workloads, which will pressure free cash flow in the short term but underscores the demand scale [8] Costco: The Durability Premium - Costco's fiscal Q1 2026 net sales increased by 8.2% year-over-year to approximately $66 billion, with comparable sales in the U.S. rising by 5.9% [10] - Membership fee revenue surged by 14% year-over-year to $1.33 billion, with a high renewal rate of 92.2% in the U.S. and Canada despite a recent fee increase [11] - Costco's market valuation is about 54 times earnings, reflecting investor confidence in its business model, but this high valuation leaves little room for error if consumer spending slows [12] Comparative Analysis - Amazon trades at about 29 times earnings, which is considered compelling given its growth in high-margin advertising revenue by 22% and cloud revenue by 24% [13] - The potential risk for Amazon lies in its aggressive AI spending not yielding expected returns, which could pressure margins longer than anticipated [14] - The recommendation suggests that while Costco may not be the best buy at its current valuation, Amazon presents a buying opportunity on its recent dip [14]