Key Points
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Amazon trades at a lower forward P/E than Walmart and Costco despite stronger long-term growth drivers.
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Walmart and Costco command premium valuations because investors pay up for predictable, resilient earnings.
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Amazon’s valuation reflects uncertainty around massive AI spending, not weakness in its underlying business.
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Amazon (NASDAQ: AMZN), the company most people file under “expensive growth stock,” trades at a lower forward price-to-earnings ratio than two old-school retailers, Walmart (NASDAQ: WMT) and Costco Wholesale (NASDAQ: COST). The forward P/E ratio, for anyone newer to this, simply measures how many dollars investors are paying today for each dollar of a company’s expected earnings over the next year. The lower the number, the “cheaper” the stock on that one yardstick.
By that measure, Amazon is the bargain of the bunch. It recently traded at a forward multiple in the high 20s, while Walmart sat closer to the high 30s and Costco commanded something in the mid-40s. Read that again: The market is asking you to pay far more for a dollar of Costco’s future profit than for a dollar of Amazon’s. For a business as fast-growing and dominant as Amazon, that feels backward. So what’s going on? After turning it over for a while, the only answer I can settle on is that these three stocks are being priced for completely different things.
What investors are really buying at Walmart and Costco
Walmart and Costco are, at their core, machines built for predictability. People buy groceries and household basics in good times and bad, which makes their sales remarkably steady. Costco layers on a membership model that turns shoppers into renewing subscribers who come back out of something close to loyalty, and Walmart has spent recent years quietly building higher-margin businesses like advertising and its own membership program on top of the store base. Neither company is standing still.
But the reason their multiples have climbed so high, in my view, is that investors are paying a premium for certainty. In a market rattled by tariffs, shifting interest rates, and worries about a stretched consumer, a business that reliably grows earnings a little bit every single year becomes a kind of safe harbor. Money crowds into that reliability, and crowding pushes the price up. You’re not just buying a retailer; you’re buying peace of mind, and peace of mind has never been more in demand.
Why Amazon’s own success makes its multiple look small
Amazon’s low multiple, oddly enough, is partly a story of things going right. Its earnings have been growing so fast that the “E” in the P/E ratio has ballooned, mathematically shrinking the ratio even as the stock price rises. The engine here isn’t the online store everyone pictures. It’s Amazon Web Services, the cloud division that recently posted its fastest growth in years, along with a booming advertising business built around the sponsored listings you see when you search the site.
Both of those throw off far higher profit margins than shipping boxes ever could, and management has said overall profitability recently hit the best level in the company’s history. Amazon is even designing its own data-center chips now, which helps it control costs as it builds out artificial intelligence capacity.
The only answer I can think of
So here’s where I land. Walmart and Costco are being valued like dependable, bond-like compounders, and the market pays a rich premium for that dependability. Amazon is being valued like a technology company whose profits are still ramping and still tied to heavy, uncertain spending on cloud and AI infrastructure.
Investors trust the retailers’ next few years almost completely, so they pay up. They trust Amazon’s underlying business too, but they discount it for the volatility and the enormous capital it’s pouring into the future. The gap isn’t really about which company is better. It’s about how much the market is willing to pay for a smooth ride versus a faster, bumpier one.
Cheaper on a P/E basis isn’t the same as a better buy, and that’s the trap to avoid. Walmart and Costco’s premiums are earned by genuine consistency, but a premium also means less room for error if growth ever slows. Amazon’s lower multiple looks tempting, but it comes with big AI bets that have to pay off. My honest read is that the “discount” on Amazon says more about what investors fear than about what Amazon is worth. Decide which trade-off fits you, and price it accordingly.
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Micah Zimmerman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Amazon, Costco Wholesale, and Walmart. The Motley Fool has a disclosure policy.
