1 Stock I'd Buy Before Costco (COST) in 2026

Costco generated $67.31 billion in revenue and $2.46 billion in operating income in its most recent quarter (3.7% operating margin including membership fees), while Amazon reported $147.16 billion in revenue from retail/ads/subscriptions/third-party fees and $5.99 billion in operating income (4.1% margin) excluding AWS; AWS itself produced roughly twice the operating income of Amazon's non-AWS business despite being under a quarter of its net sales. Costco is down ~6.5% year-to-date versus a 15.3% gain for the S&P 500, and trades at ~42.4x forward earnings compared with Amazon at ~32.2x, leading the author to argue Amazon offers superior value and growth upside. The piece frames recurring membership/subscription revenue and supply-chain strength as commonalities, highlights AWS as the key earnings growth driver, and concludes Costco may be overpriced relative to earnings momentum.

Analysis

Market structure: The article highlights a competitive bifurcation — Amazon (AMZN) benefits as a scale, low-price + high-margin (AWS) conglomerate while Costco (COST) remains a high-loyalty, low-margin retailer. Direct winners: AMZN (e-commerce, AWS, ads, third‑party logistics) and suppliers that scale with Amazon; losers: smaller retailers and any low-margin specialty chains losing share. Pricing power shifts incrementally to Amazon because AWS supports reinvestment; Costco’s membership moat preserves cash flow but limits headline growth, explaining divergent forward P/Es (AMZN ~32x vs COST ~42x).

Risk assessment: Tail risks include US/EU antitrust action against AMZN (6–24 month horizon), an AWS slowdown from enterprise capex pullback (quarters), or a membership churn shock at COST from macro stress (if renewal drops >5–7% YoY). Immediate risks (days-weeks) are earnings/Prime Day headlines; medium-term (3–12 months) are Fed rate moves and CPI prints that reprice growth multiples; long-term (2+ years) are structural shifts in retail fulfillment and cloud substitution. Hidden dependency: AMZN’s multiple is materially tied to AWS margins — a 10% AWS EBITDA decline could knock 5–8 points off AMZN’s consensus multiple.

Trade implications: Tactical trade: establish a 2–4% long AMZN core position funded by trimming 1–2% COST exposure; use risk-defined options to skew payoff. Buy AMZN 12–24 month LEAPS (e.g., Jan 2027/28) ~25–35% OTM or 6–9 month call spreads to capture re-rating with max loss defined. For COST, consider a 6–9 month bear put spread sized to 0.5–1% portfolio risk rather than naked short; alternatively sell covered calls if holding. Pair trade: long AMZN / short COST equal-dollar to capture valuation compression; rebalance if spread narrows to <5x PE difference.

Contrarian angles: Consensus underestimates regulatory drag on AMZN and overestimates inevitability of COST multiple contraction. The market may be underpricing AWS’s upside or overpricing Costco’s multiple resilience; a shock macro pivot (rate cuts within 6–12 months) would favor AMZN and NVDA-like growth names and expose COST to smaller multiple expansion. Historical parallel: Walmart’s long fight with online incumbents shows physical retail can regain share via omnichannel investments — a recovery in foot traffic or stronger membership renewals at COST would make the recent sell-off an overreaction and warrant reloading on dips.

Key Decisions for Investors

• Establish a 2–4% long position in AMZN over 4–8 weeks; complement with 12–24 month LEAPS (Jan 2027/28) ~25–35% OTM to capture AWS-driven multiple expansion, sizing options so max portfolio risk ≤1.5%.
• Trim existing COST exposure by 1–2% and replace with the AMZN position; if you still want upside on COST, sell 3–6 month covered calls or buy a 6–9 month bear put spread sized to 0.5–1% portfolio risk to protect vs further downside.
• Implement a pair trade: long AMZN / short COST equal-dollar (or 60/40 AMZN/COST if overweight growth), close or rebalance if AMZN forward PE – COST forward PE gap narrows below 5 points or if AMZN trades above 40x forward PE.
• Use event triggers: cut AMZN options position by 50% if DOJ/FTC file major antitrust action within 90 days or if AWS quarterly revenue growth falls >300 bps QoQ; add to COST if membership renewal rate in the next quarter prints >90% U.S. (signal of moat resilience).
• Overweight e‑commerce/tech (AMZN, NVDA) by +3–5% versus benchmark into a potential Fed easing cycle; underweight low-growth brick-and-mortar and grocery peers by -2–3% until Costco/CPI dynamics clarify.