Forget Nvidia. Costco and Walmart Look Scarier.

The safety record of zeppelins was relatively unimpeachable prior to the Hindenburg, and that’s why the deadly disaster so shocked the public and devastated the rigid airship industry. In markets too, the most painful selloffs tend to involve things that people erroneously assume to be absolutely secure. In the four decades through about early 2021, structural demand for safe assets pushed the yield on 10-year Treasury notes to new lows, only for a surprise bout of inflation to arrive that year and trigger one of the worst routs on record and, ultimately, a crisis for the banks that misjudged duration risk.

I’m not predicting a crisis, but I can’t help but wonder whether the stocks of Walmart Inc. and Costco Wholesale Corp. represent a similar sort of risk — a risk that a pair of “sure thing” investments could stumble.

While valuation Cassandras tend to focus on the pricy multiples of artificial intelligence stocks, Walmart and Costco actually trade at richer blended forward price-earnings ratios (34.3 times and 47 times, respectively) than Nvidia Corp. (34 times), and the situation is getting less tenable with time. Walmart’s multiple is about 3.3 standard deviations above its 2015-2024 average of 20 and Costco trades at about 1.7 standard deviations above its 10-year average of 34. From a first principles standpoint, it’s highly unusual for a pair of earthly retail stocks to have forward earnings yields — the inverse of the price-earnings multiple — that are now significantly more paltry than the yield on a two-year Treasury note. In slightly oversimplified terms, investors are willing to pay more per dollar of next year’s earnings than they’re willing to pay for a supposedly risk-free two-year Treasury note with government-guaranteed coupons.

Re-accelerating growth is part of the story. In times of belt-tightening, these companies are taking a larger share of the typical household wallet and gaining influence even among higher-income groups, and Walmart is arguably undergoing a transition into more of an e-commerce company. But these are also relatively mature companies that already have massive footprints, and their total addressable markets are hemmed in by consumer demand, meaning growth prospects can’t be the whole story. Instead, I’d argue that it’s primarily the perception of safety that has so inflated the retailers’ valuations. These stocks are surging because investors believe that they can’t go down! And paradoxically, that now puts them at a heightened risk of correction.