Recession fears resurfaced last week when a disappointing jobs report raised questions about whether the Federal Reserve waited too long to cut interest rates. Nasdaq-Composite (^IXIC 1.03%) into correction territory, meaning the technology-heavy index has fallen by at least 10% from its record high.

Shares of the Magnificent Seven suffered double-digit losses, with some hit harder than others. Amazon (AMZN 0.56%) fell 20% from its peak, while Apple (AAPL -0.97%) is down just 11%. Investors may be tempted to buy on dips in either case, but not every dip is a buying opportunity.

Amazon shares are currently trading at a reasonable price, but Apple shares still appear expensive. Here are the important details.

Amazon: The stock of the “Magnificent Seven” is now worth buying

Amazon has a strong presence in three major markets. It operates the most popular e-commerce marketplace, measured by monthly visitors. It is the third-largest advertising company in the U.S., and eMarketer says Amazon could take second place from Meta-platforms by the end of the decade. After all, Amazon Web Services is the market leader in cloud infrastructure and platform services and is therefore ideally positioned to monetize artificial intelligence (AI).

Amazon reported mixed financial results in the second quarter. Revenue rose 10% to $148 billion, below the $148.6 billion Wall Street forecast, but net income under generally accepted accounting principles (GAAP) rose 94% to $1.26 per share, beating the $1.03 per share expected by analysts.

Unfortunately, management also issued somewhat disappointing guidance. The company expects third-quarter operating profit to increase by 18%, while analysts had expected growth of 37%. This shortfall contributed to the stock’s recent decline, but presents an opportunity for patient investors.

Amazon still has strong growth prospects in e-commerce, digital advertising and cloud computing. According to eMarketer, retail e-commerce revenue and digital advertising spending are expected to grow 8% and 10% annually, respectively, through 2027. At the same time, according to IDC, public cloud services revenue is forecast to grow 19% annually through 2028. This gives Amazon a good chance of double-digit revenue growth in the coming years, which should translate into slightly faster profit growth as the company continues to optimize its operating costs.

In fact, Wall Street expects earnings per share to rise 23% annually through 2027. That makes the current valuation of 38.5x earnings seem reasonable. I say that because those numbers give a PEG ratio of 1.7, a significant discount to the three-year average of 2.9. Patient investors should feel comfortable buying a small position in Amazon today.

Apple: The stock of the Magnificent Seven is best avoided at the moment

Apple divides its business into two revenue streams: products and services. The former includes revenue from consumer electronics devices such as iPhone, iPads and Mac computers, while the latter includes revenue from the App Store, Apple Pay, iCloud and subscription offerings such as Apple TV+ and Apple Music. The company has a strong presence in several of these markets.

Apple consistently ranks second and fourth in quarterly sales of smartphones and personal computers (PCs), respectively. The company operates the leading mobile app store by revenue and has parlayed that leadership into a thriving advertising business.

In addition, Apple Pay is the leading mobile wallet in the business among US consumers, and Apple TV+ recently Paramount GlobalParamount+ is the sixth most popular streaming service in the US

But Apple is also facing headwinds. The recently passed Digital Markets Act could damage the App Store’s dominance in Europe, as it forces the company to support third-party app stores. In addition, Apple is losing market share in the smartphone market to local competitors in China. Regional iPhone shipments fell 3% in the second quarter despite an overall market recovery. This is worrying, as China accounted for 19% of Apple’s revenue last year.

Finally, Apple lacks a clear strategy when it comes to AI. In October, Apple Intelligence is set to launch, adding AI features to iPhones and MacBooks. However, these features are free and, aside from possible product upgrades, management has not yet laid out plans for future monetization. Bloomberg speculates that Apple will eventually charge for certain AI features, but whether consumers will pay for them is another question.

Apple reported modest financial results for the June quarter. Revenue rose 4.8% to $85.8 billion and GAAP net income rose 7.6% to $21.4 billion. Active devices reached a record high across all product and geographic segments, services revenue rose 14% to a record $24.2 billion and gross margin expanded 180 basis points. In short, Apple is successfully attracting consumers to its hardware ecosystem and monetizing them with high-margin services.

The problem is valuation. Apple shares currently trade at 31.8 times earnings, well above the three-year average of 27.8. That price seems particularly expensive considering Wall Street expects Apple’s earnings per share to grow 9% annually over the next three years.

This high valuation could explain why Warren Buffett Berkshire-HathawayApple’s holdings in the stock have increased in recent quarters. Investors should avoid this stock at this time.