Despite Walmart’s success, Amazon continues to experience strong retail growth. Last quarter, the online retail giant reported a 9% increase in revenue in its North American retail segment and a 33% jump in North American operating income. Similar to Walmart, Amazon is also seeing significant growth in its digital ad revenue, which increased by 19%, driven by its sponsored-ad business.
Amazon has expanded into the grocery business with Amazon Fresh and Whole Foods, although grocery sales are not as crucial to Amazon as they are to Walmart. Additionally, Amazon is entering the pharmacy business by offering same-day pharmacy services in major cities, capitalizing on industry struggles.
Over the years, Amazon has diversified its business beyond online retail. It owns Prime Video, a popular streaming service, but its main profit driver is the AWS cloud computing business. Last quarter, AWS revenue grew by 19%, while operating income increased by 49% to $10.4 billion. This is compared to operating income of $5.7 billion for the North American retail segment and $1.3 billion for the international retail segment.
Amazon is leveraging artificial intelligence (AI) to drive revenue growth and enhance profitability. In cloud computing, it is enabling customers to create AI applications through its SageMaker platform and offering large language models through its Bedrock platform. AI is also being used to optimize logistic costs, improve third-party seller experiences, and provide better product information and recommendations.
The valuation gap between Amazon and Walmart has narrowed significantly. Amazon’s forward price-to-earnings ratio is 36, while Walmart’s is 34. Amazon has been growing revenue faster than Walmart and is investing heavily in capital expenditures to capitalize on its AI opportunities.
Both Amazon and Walmart have demonstrated adaptability and innovation, positioning them as long-term winners. However, considering the modest valuation gap, higher revenue growth, and AI potential, Amazon appears to be a preferable choice for 2025.
