As autumn leaves begin to fall, some investors might be tempted to sell stocks, spooked by the so-called "October effect." This phenomenon, rooted in historical market crashes like Black Monday in 1987, has led to a widespread belief that October spells doom for stock portfolios. However, savvy investors know that reality often contradicts this myth, especially when it comes to growth stocks.
In fact, October has historically been a strong month for stocks, with the benchmark S&P 500 gaining an average of 1.4% over the past twenty years. While it's true that October can bring increased volatility, it also presents an intriguing opportunity to snap up quality growth stocks at potentially attractive prices.
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This disconnect between perception and reality creates a potential opening for astute investors to acquire high-potential growth stocks during any irrational marketwide dips. With that in mind, two growth stocks stand out as top buys this October.
An e-commerce giant poised for continued growth
Amazon (NASDAQ: AMZN) continues to dominate its markets, particularly in e-commerce and cloud services, making it a compelling growth stock for October. With its stock up 22% year to date and Wall Street's consensus predicting an additional 18.3% upside over the next 12 months, Amazon shows strong momentum.
The company's recent performance has been noteworthy, with second-quarter revenue growing 11% year over year to $148 billion after adjusting for foreign exchange rates. Key growth drivers Amazon Web Services (AWS) and advertising increased by 19% and 20% year over year, respectively, outpacing many large internet peers. Amazon's profitability has also been robust, with Q2 operating profit reaching $14.7 billion and an operating margin of 9.9%, up significantly from 5.7% a year ago.
Amazon's wide economic moat, built on network effects, cost advantages, intangible assets, and switching costs, positions it well for continued growth. The company's Prime membership program, expanding advertising business, and leadership in cloud services through AWS all contribute to its strong competitive position.
While the stock trades at a premium valuation of 25.5 times 2026 projected earnings, this reflects Amazon's dominant market position and growth potential. For investors looking to capitalize on October's historically positive-stock performance, Amazon's mix of market leadership, diversified revenue streams, and improving profitability make it an attractive growth stock to consider buying this month.
Nvidia: AI chip leader riding the generative AI wave
Nvidia (NASDAQ: NVDA) has emerged as a frontrunner in the artificial intelligence (AI) revolution, making it an attractive growth stock for October. The company's stock has skyrocketed 122% year to date, with Wall Street analysts projecting an additional 21.5% upside over the next 12 months.
Nvidia's recent performance has been remarkable, with fiscal Q2 revenue reaching $30 billion, up 122% year over year. The data-center segment, which includes AI-related products, grew by an astounding 154% year over year to $26.3 billion. This growth is driven by insatiable demand for graphics processing units (GPUs) and related products used in data centers for AI applications.
Nvidia's wide economic moat stems from its market leadership in GPUs and the CUDA software platform, creating high customer-switching costs. The company's early lead in AI hardware and software development has positioned it as the dominant vendor for AI model training, a market expected to grow exponentially in the coming years.
While the stock trades at a premium valuation of 28.5 times projected-fiscal year 2028 earnings, this premium underscores Nvidia's dominant position in the AI chip market and its potential for continued growth. For investors looking to capitalize on the AI boom, Nvidia's combination of market leadership, technological innovation, and strong financial performance makes it a compelling growth stock to consider for October.
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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. George Budwell has positions in Nvidia. The Motley Fool has positions in and recommends Amazon and Nvidia. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
