Amazon vs. Costco: Why Deep Value and AI Momentum Favor the Tech Giant Despite Short-Term Volatility

Market Momentum vs. Fundamental Value

In the short term, stock selection often feels like a game of following the herd. As of early 2026, Costco Wholesale (NASDAQ: COST) has surged with double-digit gains year-to-date, while Amazon (NASDAQ: AMZN) has retreated by a similar margin. If momentum were the sole metric for investment success, Costco would be the clear victor.

However, astute investors recognize that price action is merely one variable in a complex equation. To determine which retail giant offers better value today, we must look beyond the charts to earnings reports, capital allocation strategies, and future growth vectors.

Amazon: The AI Infrastructure Play

Amazon's stock performance in 2026 has indeed been lackluster, yet this decline does not signal operational distress. On the contrary, the company reported robust fundamentals for the fourth quarter of 2025:

• Net Sales: $213.4 billion (up 14% year over year).
• Earnings: $21.2 billion (up 6% year over year).

The market's negative reaction stems from management's announcement of a staggering $200 billion capital expenditure plan for the current year. A significant portion of this outlay is dedicated to artificial intelligence infrastructure within Amazon Web Services (AWS).

CEO Andy Jassy remains undeterred by the spending, asserting on the Q4 earnings call that AWS is "monetizing capacity as fast as we can install it." For investors who share Jassy's conviction in AI-driven growth, Amazon currently trades at a compelling valuation. Its price-to-earnings ratio sits near historic lows.

Costco: The Defensive Anchor

Conversely, Costco continues to serve as a premier defensive holding. Historically resilient during inflationary periods or economic downturns, the retailer demonstrated its stability in fiscal 2026's second quarter:

• Net Sales: $68.2 billion (up 9.1% year over year).
• Net Income: $2.04 billion (a 13.8% increase).

Despite rising tariffs driving up product costs, Costco maintains a distinct pricing philosophy. CEO Ron Vachris stated during the Q2 earnings call: "At Costco, we always want to be the first to lower prices and the last to raise them." This strategy has preserved customer loyalty, with U.S. and Canadian membership renewal rates holding steady at 92.1%, even following recent fee hikes.

The Verdict: Valuation and Growth Catalysts

While both companies represent solid long-term holdings, two primary factors tilt the scale in favor of Amazon:

1. Valuation Disparity: Costco is arguably priced for perfection, trading at a forward price-to-earnings ratio of 48. In contrast, Amazon shares trade at just 26 times forward earnings, presenting a significant discount. 2. The AI Tailwind: While both are retail entities, Amazon functions as an AI stock. The company is positioned to benefit from the rise of agentic AI, offering growth prospects that extend beyond traditional e-commerce.

Context: The Motley Fool Stock Advisor Track Record

Before executing a trade, it is worth noting the historical performance of The Motley Fool's Stock Advisor. While Amazon was not included in their latest top 10 list, the service has a proven track record of identifying high-growth winners:

• Netflix (Dec 17, 2004): A $1,000 investment would have grown to $490,325.
• Nvidia (April 15, 2005): A $1,000 investment would have grown to $1,074,070.

The Stock Advisor team reports a total average return of 900%, significantly outperforming the S&P 500's 184%. The service continues to curate lists for individual investors seeking market-crushing returns.

*Disclosure: Keith Speights holds positions in Amazon. The Motley Fool holds positions in and recommends Amazon and Costco Wholesale.*

Takeaway

Amazon offers a superior risk-reward profile due to its deep valuation discount (26x vs. 48x forward earnings) and exposure to the high-growth AI sector, whereas Costco remains a premium-priced defensive play despite its strong operational consistency.