Walmart vs. Amazon: Evaluating Long-Term Investment Potential
Walmart (NYSE: WMT) and Amazon (NASDAQ: AMZN) are two giants in the retail sector, rewarding their shareholders significantly over the years. Walmart boasts a market capitalization of approximately $750 billion, while Amazon has surpassed $2 trillion. Both companies are committed to evolving and investing in their futures, which is vital to avoid stagnation in today’s competitive market.
Determining which company presents better long-term return potential requires a closer examination of their underlying operations and valuations.
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Walmart’s Effective Retail Strategy
Walmart operates on a straightforward principle: keeping costs low to pass savings on to consumers through lower prices. This effective strategy has been in place for over sixty years, allowing the company to thrive as a discount retailer.
This low-price strategy continues as Walmart invests in technology to improve customer convenience. For instance, many stores now offer same-day delivery services.
Sales growth reflects the success of these investments. In the fiscal fourth quarter, Walmart U.S. same-store sales rose by 4.6%. Increased store traffic contributed 2.8 percentage points to the growth, while customers spent more per visit. This quarter ended on January 31.
Some investors might find Walmart’s forward guidance a bit cautious. Management forecasts sales growth between 3% and 4% and operating income growth of 3.5% to 5.5%. However, historically, Walmart has offered conservative expectations, previously exceeding its own predictions.
Investors have responded positively, pushing Walmart’s stock up by 58% over the past year, compared to an increase of just under 13% for the S&P 500. This surge has led to a higher valuation; Walmart’s stock now has a price-to-earnings (P/E) ratio of 39, up from 30 a year ago, while the S&P 500 stands at a P/E of 29.
The Broad Scope of Amazon
Amazon emerged as an early pioneer of online retail, starting with book sales over 30 years ago. Its rapid expansion has transformed it into a dominator of e-commerce, known for competitive prices and fast shipping.
Today, Amazon offers much more than online shopping. Its portfolio includes devices like Alexa, the Amazon Prime subscription service, and extensive advertising services. Last year, the company reported $638 billion in sales, with 83% stemming from its North American and international operations.
A significant portion of Amazon’s profitability, however, comes from Amazon Web Services (AWS), which contributes to just 17% of sales but comprises 58% of profits. AWS provides cloud computing solutions, a sector that is rapidly growing as companies increasingly rely on data services.
According to Synergy Research Group, cloud infrastructure spending grew by 22% year-over-year in the previous quarter. AWS leads this market with a 30% share, followed by Microsoft‘s Azure at 21% and Alphabet‘s Google Cloud at 12%.
AWS saw fourth-quarter sales increase by 18.5% to $107.6 billion, while profits surged by 61.7% to reach $39.8 billion. Over the past year, Amazon’s shares have increased by 15.3%. However, its stock’s P/E ratio, which has dropped from over 60 to 36, is still above the S&P 500 average.
Deciding Between Two Giants
Choosing between these two companies presents a challenge. Both have their merits, and I would consider investing in each. However, if forced to select just one, I would favor Amazon due to its more attractive valuation and AWS’s strong position in a rapidly expanding market.
Seize the Opportunity
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*Stock Advisor returns as of March 10, 2025
John Mackey, former CEO of Whole Foods Market and a current Amazon subsidiary, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is also on the board. Lawrence Rothman, CFA, holds no positions in 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.
The views and opinions expressed herein are those of the author and do not necessarily reflect those of Nasdaq, Inc.
