Will Costco's AI Search Growth Become a Meaningful Sales Catalyst?

Costco's surging AI search traffic boasts its highest conversion rate, offering an early sign of a potential new catalyst for digital sales growth.

Sumit Singh

2 min read

Costco Wholesale Corporation COST is seeing signs that artificial intelligence could become a meaningful new traffic source for its e-commerce business. In the third quarter of fiscal 2026, traffic from AI search grew at a triple-digit pace, though the company noted that volume remains low. This activity boasts the highest conversion rate of all traffic directed to the company’s website.

Costco is working to improve how its merchandise is understood and surfaced by large language models. The aim is to make Costco’s combination of price, quality and included services more visible when consumers use AI tools to compare products. This could be particularly useful for merchandise where the full value is difficult to communicate through a conventional search result.

Costco highlighted appliances and tires as examples. Appliance pricing can include delivery, installation and haul-away, while tires can come with installation, road-hazard protection and nitrogen. AI search can potentially capture these added benefits more effectively and give shoppers a fuller view of the total offer.

The broader digital backdrop also supports the initiative. Digitally enabled comparable sales increased 21.5% in the third quarter, while e-commerce site and app traffic rose 37%.

Costco remains in the initial stages of this effort. If AI-driven traffic continues to scale while maintaining strong conversion, it could become an increasingly important contributor to digital sales growth.

How Does Costco Stack Up Against Its Industry?

Costco, which competes with Dollar General Corporation DG and Target Corporation TGT, has seen its shares drop 7.8% over the past three months compared with the industry’s 3% decline. While Dollar General shares have risen 16.8%, Target has jumped 31.7% over the same period.

Image Source: Zacks Investment Research

What Does Costco’s Current Valuation Suggest?

From a valuation standpoint, Costco's forward 12-month price-to-earnings ratio stands at 42.19, higher than the industry’s ratio of 30.14. However, the stock is trading below its 12-month median level of 45.72, indicating some moderation in valuation.

Costco is trading at a premium to Target (with a forward 12-month P/E ratio of 17.08) and Dollar General (15.96).

Image Source: Zacks Investment Research

What Do Earnings Estimates Signal for Costco?

The Zacks Consensus Estimate for Costco’s current financial-year sales and earnings per share implies year-over-year growth of 9.7% and 13.5%, respectively. For the next fiscal year, the consensus estimate indicates a 7.8% rise in sales and 10.2% growth in earnings.

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.

Beyond Nvidia: AI's Second Wave Is Here

The AI revolution has already minted millionaires. But the stocks everyone knows about aren't likely to keep delivering the biggest profits. AI’s second wave is moving from infrastructure to implementation and these companies are at the forefront of this transition, positioned to become what Amazon and Google were to the internet era.

See Stocks Now >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report