Walmart (WMT +0.67%) was once the 800-pound gorilla in U.S. retail, and Amazon (AMZN +0.33%) was the young disruptor with its e-commerce business. Today, Amazon's worth more than twice as much as Walmart.
Much of Amazon's value stems from its cloud computing segment, Amazon Web Services (AWS), which has benefited from the growing demand for artificial intelligence (AI) compute in recent years. But investors have sold off Amazon shares amid fears that its $200 billion capital expenditure budget for 2026 won't deliver the return on invested capital needed to justify the massive expense. Meanwhile, Walmart's stock price has climbed as investors see it as largely insulated from the impact of AI. The stock's momentum carried the company's valuation past the $1 trillion milestone this month.
With the stocks headed in different directions, investors may be wondering which is the better buy right now.
Image source: Getty Images.
Walmart is firing on all cylinders
Walmart is regaining market share as it attracts more middle-class shoppers amid economic uncertainty created by President Donald Trump's tariffs and the growing impact of AI. Revenue for the retailer grew 4.9% in the fourth quarter and 5.1% for the full year on a constant currency basis. Comparable sales grew 4% for the quarter and 5.1% for the full year. That was helped by strength in its e-commerce business, which climbed 24% last quarter.
Those results compare favorably with those of other retailers, including Amazon. Amazon's physical store sales grew just 5% last quarter. Its e-commerce operations -- including first-party sales, third-party seller services, advertising, and subscriptions -- grew about 12%.
Strong top-line results have enabled it to grow earnings per share and free cash flow. EPS climbed 13.3% last year, and free cash flow reached $14.9 billion, up from $12.7 billion the year before. But investors were disappointed by the company's outlook for this year. Management expects sales growth of just 4% at the midpoint of guidance and for earnings per share to climb between 4% and 8%. Analysts were expecting $2.97 on average versus the $2.80 at the midpoint of Walmart's guidance.
NASDAQ: WMT
Key Data Points
While Walmart is historically conservative with its financial guidance, even the high end of its outlook is underwhelming. It may simply be giving new CEO John Furner some extra room for error.
But with the stock trading at about 45 times management's fiscal 2027 earnings-per-share guidance, there's not much room for error. In fact, the stock looks very overpriced, considering the company is only positioned to grow earnings at a high-single-digit rate in the long term. For Walmart's shares to climb significantly higher from here, it'll have to substantially outperform expectations.
Amazon is spending big on AI
Amazon's announcement that it will spend $200 billion on capital expenditures this year overshadowed strong fourth-quarter results. While its e-commerce business isn't growing quite as fast as Walmart's, it's also growing off a much larger revenue base. Its high-margin advertising business stood out as a key growth driver throughout 2025, producing significant improvements in operating margin for its retail business.
But the highlight was Amazon's strong AWS revenue growth, which accelerated to 24% last quarter. That's perhaps the biggest reason it's surprising that Amazon shares sold off when management said it's going to accelerate its capital expenditures to build out AWS capacity. It's already showing a meaningful return on its invested capital. The massive increase in spending should drive continued strength in AWS revenue growth, considering management's commentary that demand continues to outstrip its supply. That sentiment is echoed throughout the industry and supported by its $244 billion contracted backlog.
NASDAQ: AMZN
Key Data Points
To be sure, Amazon is making a big bet on its AWS buildout, which will likely push its free cash flow into negative territory this year. But management has an excellent track record of growing its investments in building out new facilities in both its retail and cloud computing operations. It has plenty of experience interpreting demand signals and investing appropriately to capitalize on the opportunities they present. Odds are this case will play out much as in previous investment cycles at Amazon, with free cash flow moving to even higher levels in the long run.
For now, though, investors have the chance to pick up shares of Amazon for cheap. The stock now trades at about 26 times forward earnings estimates, far lower than Walmart's. And while analysts expect somewhat sluggish earnings growth this year, that should accelerate next year as more AWS capacity comes online. Overall, the P/E ratio looks like a fair price to pay for a company growing its top line at a midteens rate and expanding operating margins. Amazon's shares look far more attractive than Walmart's right now.
