The best stock to buy right now: Amazon vs. Costco

Retail is emerging from its inflationary slump, and most of the country’s major retailers have made important progress over the past year. Amazon (AMZN 0.55%) And Costco wholesale (COST 0.88%)the two largest US retailers behind first place Walmartended the year with solid growth and strong equity gains.

Let’s see what each of these companies brings to investing and which one is the better buy today.

The case for Amazon: Not just retail

Amazon is the largest e-commerce retailer in the United States. It has higher sales than Costco and is still growing faster. It is also more profitable.

Data Source: Amazon and Costco Quarterly Reports. Amazon’s metrics are for the third quarter of 2024 and Costco’s metrics are for the first quarter of fiscal 2025.

Amazon accounts for around 40% of all e-commerce sales in the US, a staggering lead that is unassailable in the near term. The company is taking all possible measures to protect its position and attract even more purchases from its loyal Prime members, such as a new distribution network to keep products closer to customers and get them to market faster. E-commerce remains Amazon’s core business and continues to grow. According to Boston Consulting Group, e-commerce’s share of retail sales is also increasing and is expected to reach 41% of sales, up from 18% in 2017.

But there’s something else that’s currently setting Amazon apart, and that’s generative artificial intelligence (AI). Actually, it starts with Amazon Web Services (AWS), Amazon’s cloud computing business. AWS is growing faster than e-commerce and is a higher margin business. In the third quarter, revenue increased 19% year-over-year and accounted for 17% of revenue and 62% of operating income.

Many of the most valuable generative AI solutions are available to AWS customers, who can access all types of data and tools to create or benefit from AI. CEO Andy Jassy repeatedly says that it is a “once in a lifetime opportunity” and that it is already a multi-billion dollar run-rate business.

There could be many factors working in Amazon’s favor, but another important factor is its growing advertising business, or rather, its constant innovations that lead to new business areas and revenue-generating opportunities.

The argument for Costco: Stable and reliable

You could say that Costco is the exact opposite of Amazon. As much as Amazon jumps from here to there and picks up on the trend of the week, Costco remains steadfast.

That’s not entirely true; Every business must change to meet changing demands, and Costco does a great job of staying current with what it does best while leveraging new opportunities to create more value for shoppers and shareholders create. It offers self-checkout counters for faster shopping and is experimenting with the best way to integrate e-commerce into its platform. For example, it offers in-store pickup for many items, a service that Amazon cannot offer. Customers can also check inventory levels for many products. In the first quarter of fiscal 2025 (ending November 24), e-commerce sales increased 13% year over year. Traffic, order value and conversion rates increased year over year.

Costco also reports monthly results, and e-commerce grew even more, up 34% year-over-year. Management says this was due to Thanksgiving-related sales coming a week later than last year, but it was still a strong result.

But Costco is reliable because it has a reliable membership model that customers love. You could say that Costco’s main business is not selling products, but rather selling memberships. The number of paid households increased 7.6% year-over-year to more than 77 million in the first quarter, and membership revenue rose 7.8% to $1.2 billion. Renewal rates were, as usual, high, at 92.8% in the US and Canada and 90.4% globally.

Costco also pays a dividend that has a low yield of 0.48% at the current price. Occasionally, an attractive special dividend is also paid, which was $15 in 2023.

Which stock is the better buy?

None of these stocks are cheap, but Costco is more expensive, trading at a price-to-earnings (P/E) ratio of 55 versus Amazon’s 47. That makes it harder to call Costco a better value.

For most investors, Amazon will be the better buy. It grows faster and offers more opportunities. However, investors looking for a solid, reliable stock and passive income, like a retiree, might choose Costco instead.