Better Buy: Amazon vs. Target

It has been a rough year for consumer discretionary and retail stocks.

Amazon (NASDAQ: AMZN) is up just 1.1% year to date (YTD), underperforming the rest of the "Magnificent Seven" and the Nasdaq Composite (NASDAQINDEX: ^IXIC) by a wide margin. Meanwhile, Target (NYSE: TGT) has lost a third of its value YTD.

With the major indexes at all-time highs, some investors may be looking at Amazon and Target as compelling values in today's premium-priced market.

Here's what two Fool.com contributors have to say about what makes each stock stand out as a top buy now.

It really is still "Day One" for Amazon

Keith Speights: Amazon founder Jeff Bezos instilled a corporate culture centered on the idea that the company was still in "Day One." By that, he meant that Amazon retained a start-up mentality, with a focus on customers and innovation despite its huge size.

I think it really is still "Day One" for Amazon. Look at e-commerce. Even though Amazon is the 800-pound gorilla in the market, it's still growing by leaps and bounds.

In the second quarter of 2025, the company's North America and international segments (both of which focus largely on e-commerce) delivered double-digit percentage sales growth. Operating income growth for these two segments was even more impressive.

Importantly, Amazon's management focuses more on the opportunity ahead than on what they've already achieved. Case in point: CEO Andy Jassy told analysts in the company's 2024 third-quarter earnings call last year that Amazon only has around 1% of the global retail market. He pointed out that between 80% and 85% of retail sales still occur in brick-and-mortar stores, with a much smaller portion online.

Jassy is convinced this "equation is going to flip in the next 10 to 20 years." If he's right, that presents a huge opportunity for Amazon.

Sure, AWS is growing more slowly than some of its rivals. But the cloud unit still managed to increase sales by 17.5% year over year in Q2. That's not too shabby. Meanwhile, Amazon is investing heavily in agentic artificial intelligence (AI) and infrastructure expansion to stay No. 1.

Want more evidence of Amazon's "Day One" mindset? The company will soon launch its Project Kuiper satellite internet service that will compete against Elon Musk's Starlink. Amazon subsidiary Zoox already offers robotaxi services in Las Vegas, with San Francisco its next target market. I think both initiatives will pay off handsomely over time.

Admittedly, Target's valuation seems much more attractive than Amazon's. However, Target is cheap for a reason: slowing growth that's due in large part to management decisions.

I own both of these stocks. But if I had to pick one, I'd go with the faster-growing one that trades at a well-deserved premium.

The worst is over for Target

Daniel Foelber: Amazon remains the leader in cloud computing, but competition is heating up.

Microsoft Azure and Alphabet's Google Cloud are growing faster than Amazon Web Services (AWS). And Oracle is landing massive cloud computing deals with Meta Platforms and OpenAI.

AWS management believes that its slowing growth is temporary and that, despite AWS's size, the segment is still in the early innings and has plenty of room to expand in lockstep with the growth driven by artificial intelligence. Overall, Amazon seems like a decent buy, but it isn't particularly compelling, given AWS's slowdown and challenges with its e-commerce business.

Target offers investors an alternative to high-flying growth stocks.

Fundamentals drive stock price performance over the long term. But in the short term, market sentiment can carry even more weight. Combine investor enthusiasm with high-octane growth potential, and you get explosive results.

However, negative sentiment and weak fundamentals can erode a stock's value, which is precisely what is happening with Target. Target's operating margins have taken a hit as the retailer has struggled with inventory management, estimating customer buyer behavior, and getting customers into stores. Buyers are increasingly focused on value rather than the shopping experience, which is why Walmart and Costco Wholesale are performing so well.

Target's solution is to lean into what differentiates it from these value-focused options, which is an engaging in-store experience. This includes what stores look like and what products Target carries. Target has a more discretionary product mix than Walmart and Costco, but it can offer nonessentials like household goods at attractive prices relative to premium alternatives.

Given Target's languishing stock price, it's clear investors are not convinced. For Target to complete its turnaround, the company must demonstrate that its strategies are paying off. Investors will look for better alignment between inventories and customer interests, which would indicate that Target is more effectively capturing buyer behavior trends. If that happens, Target's margins and same-store sales should improve.

In the meantime, Target stock is dirt cheap, and its dividend is compelling. Target has a price-to-earnings (P/E) ratio of 10.4 and a forward P/E of 12.2 compared to a 10-year median P/E of 15.4. And unlike many turnaround companies, Target is still generating a ton of free cash flow. In fact, Target's trailing-12-month (TTM) free cash flow is $6.43 per share, and TTM earnings per share are $8.58 compared to its annualized dividend of $4.56 per share.

Add it all up, and Target is the perfect dividend stock for investors to buy because it will pay you to wait for its turnaround to pay off.

Daniel Foelber has positions in Target and has the following options: short October 2025 $100 calls on Target. Keith Speights has positions in Alphabet, Amazon, Meta Platforms, Microsoft, and Target. The Motley Fool has positions in and recommends Alphabet, Amazon, Costco Wholesale, Meta Platforms, Microsoft, Oracle, Target, 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.