Costco Wholesale Corporation (NASDAQ:COST) is one of Jim Cramer’s favorite stocks. The shares are down by 1% over the past year and are up by 12% year-to-date. As he has done with Apple and NVIDIA, Cramer has continued to stick with Costco Wholesale Corporation (NASDAQ:COST) through thick and thin. The CNBC TV host believes that the firm’s scale and negotiating power enable it to provide Americans with the lowest prices. As Costco Wholesale Corporation (NASDAQ:COST) reported its July sales data on August 5th, Cramer discussed the firm a day later in his morning appearance:
“But what I want to see today, to see if it’s strong or not, is Costco. Cause Costco had very, very good numbers, okay. And I think that should be a good example if, yes that’s getting rewarded. There’s an example where you had a number that wasn’t [inaudible] better than expected that also said good things. A lot of times it was better than expected but we didn’t get the good things. We didn’t get the forecast bump. So if you have a quarter, you reported the quarter, and you gave us a forecast, it’s like Pinterest. Pinterest forecast was not as strong as we’d like but the quarter was terrific. A lot of people raised the price tag, but Pinterest went down. And that’s been the template, if you don’t raise your forecast as much as people were hoping, your stock does not do that well.”
Costco Wholesale Corporation (NASDAQ:COST)’s scale and market share allow it to run a major membership program, which is one of its strongest points. Membership renewal rates signal customer loyalty, and as of its fiscal third quarter, Costco Wholesale Corporation (NASDAQ:COST) reported US and Canadian renewal rates of 92.2%. Through its fees, the retailer is also able to offer its customers lower prices than most and create a feedback loop of renewal rates and customer satisfaction. Yet, at the same time, Costco Wholesale Corporation (NASDAQ:COST)’s strengths also create weaknesses. The firm’s forward P/E of 42 is higher than Walmart’s 38 and significantly higher than Target’s 18.6.
As for Pinterest, Inc. (NYSE:PINS), the visual search engine platform’s shares closed 8.7% lower on August 5th after the firm had reported its second quarter earnings on the day before. Cramer used the results to point to the impact of forward guidance on a company’s shares. While Pinterest, Inc. (NYSE:PINS)’s revenue and EPS of $1.18 billion and $0.43 beat analyst estimates of $1.15 billion and $0.36, the firm’s midline guidance of $1.20 billion met analyst estimates. As is the case with other marketplace companies, such as Booking Holdings, the debate for Pinterest, Inc. (NYSE:PINS) also concerns whether the firm will be able to generate long-term value through its AI initiatives. At the same time, the impact of these initiatives on margins and the business’s reliance on cyclical retailers are additional worry points.
Shifting towards the hedge funds, while 49 funds in Insider Monkey’s database had held a stake in Pinterest, Inc. (NYSE:PINS) in Q1 2026, 107 were Costco Wholesale Corporation (NASDAQ:COST)’s stakeholders. This demonstrates a clear preference towards scale for smart money. Additionally, PINS’ forward P/E of 12.8 is significantly lower than Costco Wholesale Corporation (NASDAQ:COST)’s, which provides additional insights into the valuation concerns for the membership warehouse firm. Finally, short interest in Pinterest, Inc. (NYSE:PINS) is significantly higher at 13.6% of the float while Costco Wholesale Corporation (NASDAQ:COST)’s 1.73% is nearly negligible.
While Insider Monkey acknowledges the risk and potential of COST as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and have limited downside risk. If you are looking for an AI stock that is more promising than COST that has 100x upside potential, check out our report about the cheapest AI stock.
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Disclosure: None.
