Walmart reported a decline in same-store sales at its U.S. locations for the fiscal second quarter ending in July, and despite a 23% surge in its e-commerce business, its stock tumbled 9%. On the surface, these results appear respectable, but an undeniable reality persists: Walmart has evolved into a mature enterprise. Even with the support of e-commerce and advertising ventures, its annual revenue growth hovers around just 5%.

What this earnings report truly underscores is how remarkably well Amazon's retail operations are performing in comparison. Wall Street's attention largely centers on its cloud division, Amazon Web Services (AWS), particularly as artificial intelligence amplifies cloud computing's significance within the tech sector—a fact that often gets overlooked. If AWS were excluded, Amazon's retail and ancillary businesses, including its advertising arm, would achieve an annual growth rate of 14% to 15%. While this isn't the explosive growth typical of tech startups, it's a solid showing for a company that's been around for three decades, and it's triple the pace of Walmart's growth.

Of course, directly comparing retail revenue growth between Amazon and Walmart isn't entirely equitable. Walmart's traditional brick-and-mortar stores account for over 75% of its roughly $700 billion in annual revenue, whereas physical retail represents less than 4% of Amazon's retail sales. In the e-commerce arena, Walmart is a relative newcomer, and its online growth rate actually outpaces Amazon's. Notably, despite Amazon's more established presence in online shopping, the relative growth gap between their e-commerce operations isn't as wide as one might expect.

When advertising is factored in, Amazon's e-commerce segment generates more than triple the revenue of Walmart's. Excluding Amazon's smaller physical store operations, its global retail business grew 16.3% year-over-year in the second quarter, following a 14.2% increase in the first quarter. Amazon shifted its Prime Day event from the third quarter to the second, providing a boost to this period's results. For comparison, Walmart's e-commerce grew 23% in the second quarter and 26% in the first.

If Walmart and Amazon were to sustain their current trajectories, Walmart's online retail scale could eventually match Amazon's over time, though that would require considerable patience. However, it's highly unlikely both companies will maintain their present growth rates indefinitely. As Walmart's scale expands, its e-commerce growth will probably decelerate, gradually converging toward Amazon's pace. Meanwhile, Amazon is gaining strong momentum in areas like advertising, and its Prime Video streaming service is likely to evolve into a formidable force. Granted, Walmart's advertising business is growing slightly faster, and it has strengthened its position through acquisitions like Vizio TV. Yet, Walmart lacks a streaming equivalent to Prime Video and operates a smaller e-commerce platform, making it far more challenging to catch up with Amazon in advertising.

Investors might be wise to pay closer attention to Amazon's competitive edge in the retail sector.