Amazon (AMZN 1.52%) and Costco Wholesale (COST +1.10%) have been impressive investments in the past. In the last decade, the e-commerce and cloud computing giant's shares are up 566% (as of Dec. 30). And the warehouse club operator's shares have produced a total return of 533%. These gains are considerably ahead of the broader market's performance.
Both of these large-cap stocks have their own investment merits. But between Amazon and Costco, which is the best business to buy right now?
Image source: Amazon.
Amazon benefits from multiple tailwinds
One of Amazon's most incredible feats is how it has become a leader in numerous industries. This goes back to the company's culture of innovation and disruption, as it's always looking at ways to improve the customer experience no matter what market it decides to enter.
It dominates online shopping, thanks to its well-oiled logistics network that offers fast and free shipping and humongous marketplace that sells virtually anything under the sun. Amazon Web Services is a thriving cloud platform that is finding more success these days thanks to the advent of artificial intelligence. Amazon is growing digital ad revenue at a brisk pace, which is surely registering a high margin. The company is also involved in the healthcare industry and autonomous driving.
Amazon has developed a wide economic moat that stems from its brand name, cost advantage, switching costs, and network effect. This favorable setup makes it extremely difficult for any business that's trying to effectively compete against Amazon. It has the technological know-how, as well as deep financial resources, to stay ahead of the curve.
NASDAQ: AMZN
Key Data Points
Costco's membership model drives customer loyalty
Costco looks incredibly boring when compared to Amazon. But that doesn't mean it's not a great business. Costco has a very loyal customer base. One reason why is because it sells high-quality goods at super low prices in a no-frills shopping environment. The company is known to implement extremely low mark-ups on its products.
Another reason why Costco can drive repeat purchase behavior is because of its membership business model. Households must pay annual fees to have access to the company's massive warehouse stores. Consumers are incentivized to direct more of their spending activity to Costco. As a result, the company rakes in a predictable revenue stream that totaled $1.3 billion in its first quarter of fiscal year 2026 (ended Nov. 23). This also supports consistent same-store sales growth, something every retailer wants.
Between fiscal 2015 and fiscal 2025, Costco's net income increased by 241%. Ongoing profits that keep rising give management the ability to pay one-time special dividends, like $15 per share in January 2024, in addition to the regular payout. That can boost returns for investors.
NASDAQ: COST
Key Data Points
Both companies are outstanding, but valuation and optionality are the deciding factors
No one will argue with you if you tell them that both Amazon and Costco are wonderful businesses. They provide significant value to their customers, post consistent revenue growth and profits, and have durable competitive advantages. This means that investors should keep both on their watch lists at a minimum.
However, I view Amazon as the best stock to buy between the two right now. Valuation is one critical deciding factor. Shares trade at a price-to-earnings (P/E) ratio of 32.6. That's significantly cheaper than Costco's P/E multiple of 46.3.
Another important variable to consider, and that might be overlooked, is the presence of optionality. Costco's business does not change at all. It's extremely predictable. And investors can have confidence that a decade or two from now, the operations will be almost identical to what they are today. The market certainly values this stability, as indicated by the valuation.
If you look at Amazon, on the other hand, it operates at the intersection of various exciting technological trends. Not only does this provide numerous growth drivers, but it means that the company has optionality on its side. Consequently, Amazon is in position to grow its earnings at a much higher clip.
