Shares of e-commerce leader Amazon (AMZN 1.61%) and warehouse club Costco Wholesale (COST +1.14%) have both created significant wealth for shareholders over the long haul. But they are entering 2026 with very different valuation multiples -- and very different underlying business growth too. Surprisingly, however, the stock with the cheaper valuation is the one with meaningfully faster revenue growth.
Further, this is a particularly interesting time to compare the two stocks, as their year-to-date returns have diverged. Amazon stock has pulled back about 14% over the last month as investors digest a massive new capital spending plan. Costco stock, meanwhile, has soared 17% year to date as investors appreciate the durable and predictable nature of its underlying business amid uncertainty, driven by fears about the costs and disruptive nature of AI (artificial intelligence).
So, with the two stocks moving in opposite directions recently, which is the better buy?
Image source: Getty Images.
Amazon: accelerating growth and heavy spending
Amazon's fourth-quarter results, announced on Feb. 5, showed a business with serious momentum. Total net sales during the period rose 14% year over year to $213.4 billion, accelerating from 13% growth in the prior quarter.
Underneath the surface, however, Amazon's growth-driving cloud computing business, Amazon Web Services (AWS), saw an even more significant acceleration than its consolidated business. Revenue in the cloud segment rose 24% year over year to $35.6 billion. That pace edged up from the previous quarter, signaling that the optimization headwinds (when companies scrutinize their cloud spending to get more bang for their buck) of the last two years have abated.
Additionally, Amazon's fourth-quarter operating income rose from $21.2 billion in the year-ago period to $25 billion this quarter.
Looking ahead, however, Amazon's operating income will likely be challenged in the near term, as management is planning a major investment cycle.
Specifically, Amazon expects to invest about $200 billion in capital expenditures in 2026 -- up sharply from the $131.8 billion it spent in 2025. This comes as the AI boom is causing a surge in demand for cloud computing.
"Customers really want AWS for core and AI workloads," said Amazon CEO Andy Jassy during the company's fourth-quarter earnings call. "And we are monetizing capacity as fast as we can install it."
This massive build-out for AI infrastructure will pressure free cash flow in the near term. But it also highlights the scale of the demand Amazon is seeing.
NASDAQ: COST
Key Data Points
Costco: the durability premium
Costco is growing at a much slower rate, but its business shouldn't be underestimated.
In its fiscal first quarter of 2026, which ended Nov. 23, the membership-based retailer's net sales increased 8.2% year over year to about $66 billion. Comparable sales, a metric the company defines as sales at warehouses open at least a year, rose 5.9% in the U.S., excluding the impacts of gasoline prices and foreign exchange. And comparable sales, adjusted for the same effects, rose 6.4% when including its Canada and "other international" segments, alongside its U.S. business.
Of course, the core of Costco's model is its membership fee, which flows almost entirely to the bottom line. Membership fee revenue jumped 14% year over year to $1.33 billion. Impressively, Costco maintained a 92.2% renewal rate in the U.S. and Canada, even after implementing a membership fee increase in late 2024.
But at about 54 times earnings, the market is pricing in near-perfect execution for years to come. That high valuation, which reflects the durability and predictability investors see in Costco's business, leaves little room for error if consumer spending slows or membership growth cools.
So, which is the better buy?
Ultimately, both companies have massive structural advantages. Costco has unmatched scale and customer loyalty, while Amazon has a dominant logistics network and the leading cloud computing platform.
The deciding factor is valuation. Amazon trades at about 29 times earnings. For a company growing its high-margin advertising revenue by 22% and its cloud revenue by 24%, that price is compelling.
The risk is that Amazon's aggressive AI spending does not deliver the expected returns, pressuring margins for longer than anticipated. But at 29 times earnings, the stock is arguably already pricing in that risk. And if those investments pay off, today's price could look like a bargain in hindsight.
I'd wait for a better entry point on Costco stock. But I think Amazon stock is a buy on this dip.
