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Why Costco (COST) Is a Better Investment than Nvidia (NVDA)

Nvidia (NVDA) has been a huge recent winner, but Costco (COST) boasts a dominant business model, which is why Costco stock is the better long-term investment.

Costco (COST) Warehouse

Nvidia’s (NVDA) shares have nearly doubled (+87%) in the last 12 months to reach a valuation of over $3 trillion.

Costco (COST), on the other hand, has risen a lower but still-respectable 47% in the last year.

Though Nvidia and Costco both have great stocks, their business models could not be more different. Nvidia has a complex product but low capital requirements, exploding demand due to AI, and thus huge growth and profit margins.

Costco stock has outperformed the market by a wide margin over the last decade based on a simple, consistent strategy, with incremental improvements a key part of their success. It delivers modest, consistent growth with a well-executed, capital-intensive and logistics-heavy business model.

The Case for Costco Stock

Costco had $250 billion of revenue in 2024, 137 million members worldwide with 90% renewal rates, 861 stores (adding 20-25 each year), and only 333,000 employees (Walmart has 2.1 million), only a 7% annual employee turnover rate after the first year, plus annual sales of $1,800 a square foot that blows away the competition. Costco is even selling $200 million worth of small gold bars each month.

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This is a juggernaut that pays out to shareholders 80% of annual net income.

Its average warehouse produces an incredible $200 million of revenue a year, with top performers reaching as high as $400 million.

My Costco takeaway is twofold. One is that given its size and physical bottlenecks, it can only grow its top line about 8%-10% a year, but its stock still trades at a high 60X multiple of earnings.

The second is that the key question for investors is whether Costco can continue its expansion overseas. It may surprise you that it already has 108 warehouses in Canada, 40 in Mexico, four in Puerto Rico, 33 in Japan, 29 in the United Kingdom, 18 in South Korea, 15 in Australia, 14 in Taiwan, six in China, four in Spain, two in France, one in Iceland, one in New Zealand, and one in Sweden

In short, Costco’s success is largely attributable to a simple strategy executed consistently over time.

The Case Against Nvidia Stock

Now back to Nvidia.

What could go wrong to throw Nvidia’s tremendous momentum off course?

There are several geopolitical events that could interrupt where Nvidia’s software designs are turned into semiconductor chips. Mainly, at Taiwan Semiconductor (TSM).

Nvidia’s worst-case scenario is an open conflict regarding Taiwan, but even lower-grade tensions could interrupt the complex semiconductor supply chain and therefore the stock price of players in this sector.

Another risk is that an Nvidia competitor could figure out a way to design a better and faster AI specialist artificial intelligence code. This is a risk that last month’s DeepSeek news previewed and something that many companies are trying to do, such as Cerebras, Groq, and another startup, MatX.

Still, Nvidia is in the catbird’s seat with a significant advantage. It has built up its software architecture over many years but surely the biggest customers for AI chips, such as OpenAI, Amazon, Meta, Microsoft, and Google are all doing all they can to reduce their dependence on Nvidia.

Nvidia vs. Costco: The Verdict

If you own or are thinking of buying these two stocks right now, what should you do?

Both stocks have high valuations.

Both companies are disruptive and dominating, which is what I look for in my global investment advisory, Cabot Explorer.

Nvidia clearly is demonstrating much more explosive growth in revenue and profit than Costco, but seeing the competitive landscape out a couple of years is nearly impossible.

Costco is growing slower, but the probability of consistent annual gains is much higher.

The bottom line is this: Costco stock is an investment so buy on any pullbacks, and hold it for the long haul. Nvidia stock is a trade, so make sure to watch it closely, take partial profits from time to time, and protect your downside with options.

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Carl Delfeld is a member of the Cabot investment team, and chief analyst of Cabot Explorer.