Why These 2 Stocks Are Expensive but Have Great Growth Potential - TheStreet

The stock market can be a tough place, but investors who want super-fast growth will need to pay top dollar.

Ecommerce king Amazon (AMZN) - Get Report and graphic processing unit maker Nvidia (NVDA) - Get Report don't come cheap and trade at a significant premium to their counterparts, but they are growth stock winners.

Both have increased significantly in value over the past five years. Moreover, demand for their services should remain strong as both companies are on top of powerful consumer trends.

Amazon has transformed the retail industry. Even the mighty Walmart has had to make big changes to keep pace with Amazon, including the purchase of Jet.com for $3 billion to beef up its online presence.

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Amazon offers a range of discounts and easy shipping and varied payment options.

No wonder Amazon shares trade above $800 and the company's $380 million market value ranks it fourth behind only Apple, Alphabet and Microsoft in the U.S. Analysts think Amazon can go higher and beat the market over the long term.

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Analysts from Argus, Evercore and Mizuho Securities have upgraded the stock. Price targets range from $855 to above $1,000 a share in one case.

With annual earnings growth potential of 50%, Amazon is among the best stocks for investors who want to ride growth.

E-commerce peers such as Alibaba, Baidu and eBay can't match Amazon in terms of earnings growth expectations. Although they are in the single digits, Amazon has shown that profitable growth can come from ecommerce with size.

So, don't balk at a 61.7 times forward price-earnings valuation. There won't be another Amazon any time soon.

For anyone who plays computer or video games or owns a PlayStation, Nvidia is a known brand. The company has pioneered GPU-accelerated computing, which allows it to provide products for designers, gamers and scientists.

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Nvidia products have applications in explosive growth areas such as artificial intelligence, autonomous cars, professional visualization and virtual reality. This more than $34 billion company has in excess of 21% operating margins.

Its huge potential and excellent execution have helped it garner nearly $5 billion in cash or $3.5 billion after paying off all debt.

Nvidia's expected annual earnings growth of more than 23% over the next five years is stronger than chipmakers such as Advanced Micro Devices,Intel and Qualcomm.

The stock has gained 97% this year, and the consensus among 29 investment analysts is that Nvidia is a buy.

RBI Capital analysts think that the Nvidia story has materially changed to a structural long. This stems from deep learning and automotive and virtual reality growth prospects that Nvidia has carefully cultivated through clever investments. 

Nvidia is one of the best stocks for growth investors.


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This article is commentary by an independent contributor. At the time of publication, the author held none of the stocks mentioned.