Which stock is the best buy for 2025?

A pair of behemoths in the retail space, both Amazon (NASDAQ:AMZN) And Walmart (NYSE:WMT) have been big winners in 2024. However, it is Walmart stock that has been the biggest winner this year, up nearly 80% year to date as of this writing, compared to a return of around 47% for Amazon stock.

With the calendar soon set to flip to 2025, let’s see which stock looks best positioned to outperform next year.

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Business transformations

There’s no doubt that Amazon has had a major influence on Walmart over the years. Its online retail platform and logistics network created an existential challenge for Walmart that led the latter company to transform into the nation’s largest grocery store. In fact, Walmart now accounts for more than a quarter of all grocery sales in the United States.

Walmart’s size and purchasing power have allowed it to offer its customers the best prices. Given the high inflationary environment of recent years, this not only resonated with Walmart’s core customer base, but it also helped it attract a more affluent clientele.

At the same time, Walmart continues to have a massive physical footprint, to the point where 90% of the U.S. population is within 10 miles of one of its stores. By combining ubiquity with increasing automation behind the scenes, the company was able to offer free same-day delivery through its Walmart+ membership, adding more convenience and attracting customers. In some locations, it even offers home deliveries.

All of this also helps fuel growth in its general merchandise categories. Last quarter, while some other general merchandise retailers like Target were struggling, Walmart noted strength in categories such as home technology, toys and seasonal decor.

The company has also delved into digital advertising with its Walmart Connect advertising business, which offers online and offline marketing solutions for brands. Last quarter, the company said advertising and memberships helped account for half of the operating profit gains it recorded.

Overall, Walmart grew its revenue by 5.5% last quarter, its operating income by 8%, and its adjusted earnings per share (EPS) by 14%.

Image source: Getty Images.

That said, Walmart’s success hasn’t hindered Amazon’s retail growth. The online retail giant reported a 9% increase in revenue in its North America retail segment last quarter and a 33% rise in operating profit in America from the North. Like Walmart, Amazon is seeing strong growth in digital advertising, up 19%, thanks to its sponsored advertising business.

This is also the case in the grocery sector, with Amazon Fresh and Whole Foods, although they are not as important to Amazon as grocery sales are to Walmart. Meanwhile, Amazon appears ready to take advantage of the industry’s woes and take on the pharmaceutical sector, as it has started offering same-day pharmacy services in several major cities.

Amazon has also transformed its business over the years and is now much more than just an online retailer. It owns a popular streaming service in Prime Video, but the company’s main profit driver is its AWS cloud computing business. This segment grew its revenue by 19% last quarter, while its operating profit soared 49% to $10.4 billion. This compares to operating income of $5.7 billion for the North American retail segment and $1.3 billion for the international retail segment.

It’s no surprise that Amazon is turning to artificial intelligence (AI) to help drive revenue growth and improve profitability. In cloud computing, the company helps customers build their own AI applications through its SageMaker platform, while offering foundational extended language models (LLMs) from both itself and startups. AI ups with its Bedrock platform. The company is also looking to reduce logistics costs by using AI to find the best routes. And it uses AI to make it easier for third-party sellers to list items on its site and to provide better product information and recommendations.

Evaluation and verdict

The traditional valuation gap between Amazon and Walmart has narrowed significantly this year. Amazon now trades at a forward price-to-earnings (P/E) ratio of 36, while Walmart currently sits at a multiple of 34:

AMZN PE Ratio (Forward 1y) data by YCharts.

Amazon has recently grown its revenue faster than Walmart (11% last quarter versus 5.5%), although it is spending heavily on capital expenditures as it pursues its AI opportunity.

Both companies have shown the ability to adapt and innovate over the years, which should allow both stocks to become winners in the long term. However, for 2025 – given the modest valuation gap between the two, its higher revenue growth, and the AI ​​opportunity ahead – I prefer Amazon.

Should you invest $1,000 in Amazon right now?

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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. Geoffrey Seiler has no position in any of the stocks mentioned. The Motley Fool holds positions and recommends Amazon, Target and Walmart. The Motley Fool has a disclosure policy.