Best Stock to Buy Right Now: Walmart vs. Amazon

Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN) have long been the biggest names in retail, and their shareholders have been handsomely rewarded. Walmart has a market capitalization of around $750 billion, and Amazon's exceeds $2 trillion. Both companies continue evolving and investing for the future. That's positive, since businesses need to move forward or risk becoming stagnant and outdated.

But which one offers the better long-term return potential? That requires a look at the underlying businesses and valuations.

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Walmart

Walmart's retail operations have a simple formula. That's to keep costs down to pass those savings on to customers in the form of lower prices. It sounds basic, but Walmart has been devastatingly effective since it first began running discount stores more than six decades ago.

The basic concept of low prices has remained as management has invested in technology, including building omnichannel capabilities focused on enhancing the customer's convenience and experience. Many of its stores offer same-day delivery, for instance.

Looking at sales growth, its investments have been paying off. At its core Walmart U.S. business, same-store sales (comps) increased 4.6% in the fiscal fourth quarter. Importantly, people still clamored to go to Walmart stores, as evidenced by higher traffic that contributed 2.8 percentage points. Higher spending comprised the balance. The period ended on Jan. 31.

Some investors might have been unnerved by what they deem as lukewarm guidance for this year. Management expects sales to grow 3% to 4%, and operating income to increase 3.5% to 5.5%. However, it's been conservative in the past, giving a similar sales and profit growth outlook last year that Walmart exceeded.

The company's success isn't a secret, naturally. The stock appreciated by 58% over the past 12 months. During this time, the S&P 500 index has gained just under 13%. The share price increase has resulted in a more expensive valuation. Walmart's stock has a price-to-earnings (P/E) ratio of 39 compared to about 30 a year ago. The S&P 500 has a P/E multiple of 29.

Amazon

Amazon became an early online retailer when it started selling books on its site more than 30 years ago. It rapidly expanded its offerings and now sells virtually everything imaginable; it's become known for competitive prices and fast delivery.

It's much more than an online seller now, of course. It has devices such as Alexa, the Amazon Prime subscription service, and provides advertising services, to name a few offerings. Last year, the company generated $638 billion in sales, 83% of which came from the North America and international operations that encompass the aforementioned.

However, Amazon Web Services (AWS), while representing the balance of sales, produces the majority (58%) of the company's profit. AWS offers cloud computing services. With organizations clamoring for data, the business has grown rapidly, and sales and profits could accelerate as artificial intelligence (AI) continues evolving.

Cloud infrastructure spending grew 22% year over year in the fourth quarter, according to Synergy Research Group. AWS remains the market leader in this fast-growing segment with a 30% share. Microsoft's Azure and Alphabet's Google Cloud have the next biggest shares at 21% and 12%, respectively.

AWS' fourth-quarter sales increased 18.5% to $107.6 billion, and its profit jumped 61.7% to $39.8 billion. Amazon's shares rose 15.3% over the last year. The stock's P/E multiple has contracted from over 60 to 36. The current P/E ratio is higher than that of the S&P 500, however.

The choice

It's a difficult decision. I like both companies and would invest in each one. However, if I could only choose one, I'd buy Amazon based on the stock's slightly more reasonable valuation and the strong position of AWS in a fast-growing market.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Lawrence Rothman, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Amazon, Microsoft, and Walmart. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.