Spanish news outlet Don Balon claim the La Liga outfit have made the Premier League superstars their top targets this summer.
And it's understood Madrid boss Diego Simeone is keen to complete his business early.
Sanchez joined the Gunners for £35m from Barcelona two years ago and has dazzled since making the switch.
The Spain star has frequently courted controversy since moving to the Premier League in July 2014.
Costa bagged 64 goals in 133 appearances during his first stint with Atletico and helped them win the Spanish title in 2014.
The La Liga outfit are ready to splash the cash after offloading Jackson Martinez to Chinese outfit Guangzhou Evergrande for £32m earlier this year.
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