The Nasdaq Composite (NASDAQINDEX: ^IXIC) closed in correction territory on Aug. 2, meaning it had fallen at least 10% from its bull market high. Worrisome labor market data factored heavily into the drawdown. The U.S. added fewer jobs than analysts anticipated in July, and unemployment reached its highest level since 2021.

However, investors have good reason to be optimistic. The index tends to bounce back quickly. During the last 15 years, the Nasdaq has returned an average of 21.9% during the 12 months following its first close in correction territory. The implied upside is approximately 22% by August 2025 because the index has traded sideways since entering a correction last month.

Of course, past performance never guarantees future results. But Wall Street analysts forecast sizable gains for Amazon (NASDAQ: AMZN) and Zscaler (NASDAQ: ZS).

• Amazon has a median 12-month price target of $220 per share, implying 26% upside from its current share price of $174.

• Zscaler has a median 12-month price target of $220 per share, implying 38% upside from its current share price of $159.

Here’s what investors should about these Nasdaq stocks.

Amazon: Wall Street forecasts 26% upside

Amazon has a strong presence in e-commerce, digital advertising, and cloud computing, and the company is gaining share across all three markets. In e-commerce, Amazon will account for 40.4% of online retail sales in the U.S. this year, up 80 basis points from last year, according to eMarketer.

In digital advertising, Amazon will account for 13.9% of digital ad spending in the U.S. this year, up 140 basis points from last year, according to eMarketer. And in cloud computing, Amazon Web Services accounted for 32% of cloud infrastructure and platform services spending in the second quarter, up 100 basis points from the previous quarter, according to Synergy Research Group.

Amazon reported decent financial results in the second quarter, though the company narrowly missed top-line estimates. Revenue increased 10% to $148 billion, but Wall Street expected revenue to grow half a percentage point faster. However, GAAP earnings still increased 94% to $1.26 per dilute share, easily topping the 58% growth analysts anticipated.

Missing second-quarter revenue estimates alone may not have caused a problem, but management also forecasted slower growth in the third quarter. Specifically, the midpoint of guidance implies 9% revenue growth, which is slightly below the 11% growth analysts anticipated. The stock fell sharply on the news and it has yet to rebound.

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But investors are missing the big picture. Amazon is gaining market share across its core businesses, and Wall Street expects the company to grow earnings at 23% annually over the next three years. That estimate makes the current valuation of 42 times earnings look reasonable. Those figures give a PEG ratio of 1.8, which is well below the three-year average of 2.9. In that context, investors should feel confident buying a small position in this growth stock today.

Zscaler: Wall Street analysts forecast 38% upside

Zscaler is a cybersecurity company that specializes in zero trust network access. Its security service edge (SSE) platform solves three major problems inherent to traditional perimeter-based solutions. First, it provides a better user experience because web traffic is inspected in the cloud rather than private data centers, which prevents bottleneck-based performance issues.

Second, it frees businesses from the burden of buying expensive on-premises security appliances. Third, it improves threat detection because Zscaler has more data than non-security companies. It uses that information to train artificial intelligence models, creating a network effect whereby every data point enhances its ability to detect and stop attacks.

CEO Jay Chaudhry recently highlighted that advantage. “We are training our AI security models with vast amounts of data generated by over 400 billion daily transactions on our platform to deliver superior threat detection. We are leveraging AI to automatically classify data and enforce policies for better data loss prevention.”

Zscaler reported better-than-expected financial results in the fourth quarter of fiscal 2024 (ended July 31). Revenue increased 30% to $593 million and non-GAAP net income jumped 38% to $0.88 per diluted share. CEO Jay Chaudhry said the company set a record for new and upsell business during the quarter, driven in part by emerging products for AI analytics and digital experience monitoring.

However, management provided disappointing guidance that caused the stock to fall over 17% following the report. Revenue growth is projected to decelerate to 20% in fiscal 2025. But that reflects temporary headwinds arising from higher-than-expected turnover in the sales organization last quarter. Hiring and training sales reps will take time, according to CFO Remo Canessa. But the company’s go-to-market capabilities should improve toward the second half of they year.

Meanwhile, the drawdown creates a buying opportunity for patient investors. Wall Street expects Zscaler’s revenue to grow at 21% annually over the next three years. That makes its current valuation of 10.9 times sales look reasonable. In fact, Zscaler shares haven’t been that cheap in 15 months.

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John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon and Zscaler. The Motley Fool has positions in and recommends Amazon and Zscaler. The Motley Fool has a disclosure policy.

History Says the Nasdaq Will Soar: 2 Growth Stocks With 26% and 38% Upside to Buy Now, According to Wall Street was originally published by The Motley Fool