Why Costco’s (COST) AI-Grade Multiple is a Warning Signal for Investors

Costco Wholesale (COST) is widely regarded as one of the highest-quality businesses in the U.S. stock market and for good reason. Its brand strength, operational discipline, loyal membership base, and consistent execution make it a rare example of a company that has earned investor trust over decades. The issue, however, isn’t the business—it’s the stock.

To me, there is a distinct disconnect between COST’s price and its valuation. Costco isn’t some speculative corner of the market—it’s a conservative, widely owned, so-called “safe” stock. When a business like Costco is trading at stretched multiples, it signals that market excess isn’t confined to flashy tech names or the top of the risk spectrum. In fact, Costco’s valuation is a clearer indicator of market overvaluation than many Big Tech stocks, which—at least for now—are supported by stronger growth and cash-flow trajectories. How long that can last is the key question many investors are pondering as we sweep into 2026.

Today, Costco’s shares are priced not just as those of a high-quality company, but also as those of a high-growth one. And that’s where the mismatch lies. Costco is a steady, durable compounder, not a business entering a phase of outsized growth. When a company with modest, predictable growth is valued like a growth outlier, future returns become constrained, regardless of how well the underlying business continues to perform. That valuation gap is the primary reason I’m neutral on COST.

Costco is Priced Like a Market Winner

The current analyst consensus is that Costco’s FY26 EPS is about $20, implying roughly ~11% year-over-year growth. The implied forward P/E is 43x, with an earnings yield of just 2.3%, which is exceptionally rich for a company expected to grow earnings in the low double digits in the near term.

Compared to trend-setters like Nvidia (NVDA), there is a stark difference. For next year, NVDA has a consensus EPS estimate of 60%, with a forward P/E of just 24. However, Nvidia is priced the way it is due to the cyclicality involved (it doesn’t take a genius to realize AI capex won’t go on forever). When the AI bubble bursts, it will be stocks like Nvidia that take the biggest hit, not Costco.

Meanwhile, the U.S. 10-year Treasury yield has remained consistently close to 4%, and Costco’s implied earnings yield of 2.3% should ring alarm bells. Equities should usually offer a higher expected return than Treasuries because they’re riskier, so Costco investors are really betting on durable compounding and continued multiple support from everyone wanting a perceived “safe” asset—though I’d argue it’s not safe if the fundamentals don’t add up. 

When we look at the market from first principles, the data points to the S&P 500 (SPX) currently being in bubble territory, with a 10-year P/E of 39.1, 89.6% above the modern-era market average of 20.6. When we also consider that the federal debt interest payments have recently surpassed the defense budget (a historical signal of empire collapse), even the productivity and growth benefits from AI do not warrant a higher valuation. The market, if rational, should be fairly valued — or so the theory goes. Costco is a leading example of an asset that is priced incorrectly in a rising AI tide that has lifted all boats. 

Where Could Costco Go From Here?

Costco’s P/E ratio has not always been this high. It peaked at the turn of 2025 at 63, but previously had stabilized at around 30 (where it belongs). At current prices, the stock’s P/E ratio is 46. Notably, since February, Costco’s stock price has declined by nearly 20%. Most analysts expect the stock price to rebound over the next 12 months, but I think the fundamentals make it a poor investment, so I’m neutral on the stock.

To give the stock some credit, it is well priced for its stability, as its net income isn’t prone to decline and typically grows through changing economic conditions. That’s one of the benefits of operating in the consumer staples industry—these businesses are recession-resistant because they sell non-discretionary goods. During 2008, the S&P 500 fell ~40%, while consumer staples declined only ~15% at the trough.

Staples outperform the S&P 500 in recessions, but they underperform in strong expansions. So, despite a high multiple, it’s priced for its stability, not cyclical fervor or temporary hypergrowth. Still, in my eyes, over the next 6–9 months, Costco might underperform the market and only rise marginally in price, and in a broad market sell-off, it won’t be immune. 

Is Costco a Buy, Sell, or Hold?

On Wall Street, Costco has a consensus Moderate Buy rating based on 17 Buys, six Holds, and one Sell. The average COST price target is $1,061.83, indicating a 23% upside potential over the next 12 months.

See more COST analyst ratings

However, the low estimate from top analysts implies a 12-month stock price potential of $926, which is a much smaller return than the consensus assumes from the current price of $865. Given Costco’s high stock valuation and the elevated macroeconomic backdrop, I’m more inclined to view the upside from here as marginal and not alpha-generative.

Best-in-Class Retailer with Not-so-Great Price

Costco is a best-in-class retailer with resilient demand, sticky memberships, and steady profit growth across cycles, but it’s priced like an AI-era secular winner. At roughly ~43x forward earnings for ~11% expected EPS growth and an earnings yield near 2.3% (below the low-4% yield on the 10-year Treasury), that’s not great value. Historically, Costco has traded closer to ~30x, and even after the recent ~20% drawdown, the current multiple still assumes persistent “safe asset” sponsorship. 

The valuation gap is more than a Costco issue; it’s a clear signal that today’s market is stretching multiples in defensives even as true hypergrowers can look cheaper on earnings. If the S&P 500 de-rates (which I think it will), Costco won’t be immune. I remain neutral on COST.