Nasdaq Faces Correction, but Amazon and Zscaler Show Promise

The report highlights a concerning correction in the Nasdaq Composite, driven by weak labor market data. However, analysts predict significant upside for Amazon and Zscaler, despite some mixed financial results, suggesting potential investment opportunities in these stocks.

Date: 11-09-2024

AI Rating: 6

The Nasdaq Composite's recent correction, meaning it has declined at least 10% from its bull market high, raises concerns for investors. This downturn, influenced by disappointing job growth data and rising unemployment, may negatively impact overall market sentiment.

Despite this, there is optimism surrounding Amazon and Zscaler, both of which are expected to see notable growth. Amazon's share of U.S. online retail sales is projected to increase significantly, with the company capturing 40.4% of the market this year. Furthermore, Amazon's dominance in digital advertising and cloud services indicates a strong position in multiple high-growth sectors.

Amazon recently reported a revenue increase of 10% to $148 billion, although it narrowly missed Wall Street's expectations. The company did achieve a remarkable 94% growth in GAAP earnings, reaching $1.26 per diluted share, which surpassed the anticipated 58% growth. However, the guidance for the next quarter projects a 9% revenue growth, falling short of the 11% analysts expected, which has led to stock declines.

Investors should note that despite the short-term turbulence, analysts expect Amazon to grow earnings by 23% annually over the next three years, suggesting that its current valuation remains reasonable. The anticipated PEG ratio of 1.8, below its historical average, implies potential for future stock appreciation.

On the other hand, Zscaler reported a robust revenue increase of 30% to $593 million, with non-GAAP net income growing 38% to $0.88 per diluted share, reflecting strong demand for its cybersecurity solutions. Critics noted, however, that Zscaler issued disappointing guidance, predicting a deceleration in revenue growth to 20% in fiscal 2025 due to sales organization turnover. Analysts forecast a revenue growth rate of 21% annually over the next three years, suggesting a resilient long-term outlook for Zscaler as well.

In summary, while the current market conditions present challenges, both Amazon and Zscaler exhibit strong growth prospects that could benefit investors willing to navigate the market's fluctuations. The focus should remain on their long-term growth strategies and market positions.

Stocks: AMZN ZS