Does Costco Stock Really Deserve a Valuation as High as Nvidia's?

Costco (NASDAQ: COST) and Nvidia (NASDAQ: NVDA) rarely appear in the same sentence. One is a membership-based wholesale retailer known for its low prices and loyal customers. The other designs the chips that power artificial intelligence (AI). Yet the market has recently valued their stocks in similar territory on a trailing price-to-earnings basis. That metric for both has been in the low 50s.

But this raises the question: How could Costco, which is seeing a growth rate that is just a fraction of Nvidia's command just as high of a valuation multiple?

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Investors pay up for Costco's durability

Costco's recent results do a good job of showing the consistency that investors love about the company.

In the fourth quarter of fiscal 2025 (the period ended Aug. 31), revenue rose 8%. Driving the top line, comparable sales increased 5.7% and e-commerce grew 13.6%. The company's high-margin membership fee revenue -- a hallmark for Costco -- climbed 14% in the quarter and reached about $5.3 billion for the full year.

Operating income increased faster than sales for the year, a sign that margins are edging higher as scale and supply chain efficiency do their work, helped by a larger share from private label (Costco's fast-growing Kirkland Signature brand).

The company's combination of value, staple items, and a membership model are what drive so much consistency and visibility in its business. But membership is the core. Unsurprisingly, renewal rates came in at an impressively high rate of 92.3% in the U.S. and Canada and 89.9% worldwide for fiscal Q4. Management did flag a shift that could nudge the figure slightly lower as more sign-ups come through digital channels with lower first-year retention. But there's an intention behind this trade-off. The company is taking a more aggressive approach to increasing the absolute number of sign-ups and is targeting younger customers. Of course, membership fees continue to outgrow sales by a significant margin.

The company's growing cash flows and balance sheet strength are worth calling out, too. Costco's operating cash flow rose 18% year over year in fiscal 2025. Further, Costco's cash handily exceeds its debt. This backdrop helps explain why the company not only pays a regular dividend by also a special dividend from time to time. Costco's lucrative model helps the company build excess cash over time, prompting the board to authorize a special dividend occasionally. The last one was for $15, paid in early 2024.

While the company's model is durable, there are still risks to consider. For instance, Costco could suffer from softer-than-expected renewal trends from its digital and younger cohorts. Additionally, a consumer slowdown would likely pressure sales of big-ticket items at its stores. But the model has shown spectacular resilience for decades, which helps explain the premium investors are willing to pay for those earnings.

Investors love Nvidia's growth

Nvidia tells a different, but equally clear, valuation story. Both companies justify their valuations -- but in totally different ways. For Nvidia, sheer growth does the trick.

In the second quarter of fiscal 2026, total revenue jumped 56% year over year to $46.7 billion driven primarily by a 56% increase in its data center sales, which ended the period at $41.1 billion. This growth led to a 61% year-over-year increase in earnings per share.

Management guided for roughly $54 billion of revenue in the current quarter. This would be up substantially from its total revenue of $35.1 billion in the year-ago quarter.

Nvidia CEO Jensen Huang called the company's AI-computing GPU architecture Blackwell "the AI platform the world has been waiting for," noting that demand is "extraordinary."

Nvidia's combination of absolute growth alongside profitability is astounding, helping show why investors pay such a high valuation multiple for the stock.

But with growth rates far ahead of Costco, shouldn't Nvidia trade at a much higher price-to-earnings multiple? The catch for Nvidia is visibility. The chipmaker's results are tied to cyclicality, product cycles, and massive capital expenditures from a concentrated customer base of very large customers. Together, these factors translate to signfiicant uncertainty. In addition, history has shown how quickly technology can change, and how yesterday's leaders can be supplanted by new ones (case in point Intel). Another key risk the company is facing at the moment, of course, is changing U.S. export controls.

None of this changes what the company is earning today, yet it does make the next three to five years harder to forecast with confidence. When the market pays a steep price-to-earnings multiple for a cyclical business, it is assuming the business will grow substantially over the next 10 years -- and from a high bar, with margins already in the mid-70s and extremely tough revenue comparisons. That may prove right. It also might not. Technology is very difficult to predict.

Different kinds of quality

So does Costco deserve to trade around the same valuation as Nvidia? Counterintuitive as it sounds, yes. The retailer's membership economics and intense focus on value create an earnings profile investors can bet on with unusual confidence. Nvidia's business is extraordinary, and it may compound for years, yet its premium rests on a product cycle and an AI build-out that could change as competitors catch up or customers diversify.

A similar price-to-earnings ratio can reflect two kinds of quality. One is rooted in predictability. The other leans on momentum.

Daniel Sparks and his clients have no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Nvidia, Costco, and Intel. The Motley Fool has a disclosure policy.