Amazon Surges Past Walmart as Valuation Gap Widens
Amazon and Walmart are two of the largest retailers in the US, but their stock performances have been vastly different this year. Amazon is near a 52-week high at $262 per share, up 14% year-to-date. In contrast, Walmart's stock has fallen to its lowest point this year, trading around $115 per share, with a 3% year-to-date gain.
The valuation gap between the two companies is substantial, with Amazon having a price-to-earnings (P/E) ratio of 21, which is lower than it has been in over a decade. This is in stark contrast to Walmart, which is trading at roughly 40 times earnings, significantly above its historical average.
Amazon's recent surge can be attributed to the company's strong second-quarter earnings release on July 30, where net sales rose 20%, operating income soared 43%, and Amazon Web Services (AWS) experienced a 37% growth rate. This performance justified Amazon's massive AI spending spree, with plans to spend $200 billion in capital expenditures by 2026.
However, this high spending has depleted Amazon's free cash flow, resulting in a cash outflow of $7.6 billion for the trailing 12 months. Despite this, investors have become more optimistic about Amazon's future prospects, sparking a recent rally.