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Can AI Search Become Costco's Next Digital Growth Driver?
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Key Takeaways
Costco is using AI search to make its products and member value easier for consumers to find.
AI traffic remains low but grew triple digits in Q3 and had the highest conversion rate.
Digital engagement is strong, with site and app traffic up 37%, and digital comps up 21.5%.
Costco Wholesale Corporation (COST - Free Report) suggests that artificial intelligence (AI) is a small but important digital opportunity, even at this early stage. Management said consumers are increasingly using AI to research products and services, and Costco is working with leading AI companies to improve how its value proposition is presented to current and potential members. The strategy is not about changing the core model. It is about making Costco products easier to find through AI search.
The key step is to improve online product pages so that large language models can better capture Costco’s quality, pricing and member value. This matters because some Costco offers are hard to explain through a regular search. Management pointed to appliances, where the real value includes delivery, installation and haul-away and to tires, where installation, road hazard coverage and nitrogen are included. AI search can present that broader value more clearly.
The early signals are notable. AI-generated traffic remains low, but Costco saw triple-digit growth in the third quarter of fiscal 2026, and this traffic carried the highest conversion rate of any source coming to its site. That sits alongside strong digital engagement, with site and app traffic up 37% and digitally enabled comparable sales up 21.5%. AI search is not yet a major revenue engine, but it could become a useful driver for Costco’s digital business.
What the Latest Metrics Say About Costco
Costco, which competes with Dollar General Corporation (DG - Free Report) and Target Corporation (TGT - Free Report) , has seen its shares drop 4.5% over the past three months compared with the industry’s 0.2% decline. Shares of Dollar General and Target have jumped 1.4% and 18.1%, respectively, in the aforementioned period.
Image Source: Zacks Investment Research
From a valuation standpoint, Costco's forward 12-month price-to-earnings ratio stands at 43.11, higher than the industry’s ratio of 30.91. However, it is trading below its 12-month median level of 46.40, indicating some moderation in valuation despite sustained investor confidence in the stock.
Costco is trading at a premium to Target (with a forward 12-month P/E ratio of 16.38) and Dollar General (15.71).
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings per share implies year-over-year growth of 9.4% and 13.3%, respectively. For the next fiscal year, the consensus estimate indicates a 7.8% rise in sales and 10.2% growth in earnings.
The consensus estimate for earnings per share for the current and next fiscal year has increased by 5 cents and 6 cents to $20.38 and $22.46, respectively, over the past 30 days.
View the Zacks #1 Rank List
Image: Bigstock
Can AI Search Become Costco's Next Digital Growth Driver?
Key Takeaways
Costco Wholesale Corporation (COST - Free Report) suggests that artificial intelligence (AI) is a small but important digital opportunity, even at this early stage. Management said consumers are increasingly using AI to research products and services, and Costco is working with leading AI companies to improve how its value proposition is presented to current and potential members. The strategy is not about changing the core model. It is about making Costco products easier to find through AI search.
The key step is to improve online product pages so that large language models can better capture Costco’s quality, pricing and member value. This matters because some Costco offers are hard to explain through a regular search. Management pointed to appliances, where the real value includes delivery, installation and haul-away and to tires, where installation, road hazard coverage and nitrogen are included. AI search can present that broader value more clearly.
The early signals are notable. AI-generated traffic remains low, but Costco saw triple-digit growth in the third quarter of fiscal 2026, and this traffic carried the highest conversion rate of any source coming to its site. That sits alongside strong digital engagement, with site and app traffic up 37% and digitally enabled comparable sales up 21.5%. AI search is not yet a major revenue engine, but it could become a useful driver for Costco’s digital business.
What the Latest Metrics Say About Costco
Costco, which competes with Dollar General Corporation (DG - Free Report) and Target Corporation (TGT - Free Report) , has seen its shares drop 4.5% over the past three months compared with the industry’s 0.2% decline. Shares of Dollar General and Target have jumped 1.4% and 18.1%, respectively, in the aforementioned period.
Image Source: Zacks Investment Research
From a valuation standpoint, Costco's forward 12-month price-to-earnings ratio stands at 43.11, higher than the industry’s ratio of 30.91. However, it is trading below its 12-month median level of 46.40, indicating some moderation in valuation despite sustained investor confidence in the stock.
Costco is trading at a premium to Target (with a forward 12-month P/E ratio of 16.38) and Dollar General (15.71).
Image Source: Zacks Investment Research
The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings per share implies year-over-year growth of 9.4% and 13.3%, respectively. For the next fiscal year, the consensus estimate indicates a 7.8% rise in sales and 10.2% growth in earnings.
The consensus estimate for earnings per share for the current and next fiscal year has increased by 5 cents and 6 cents to $20.38 and $22.46, respectively, over the past 30 days.
Image Source: Zacks Investment Research
Costco currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.