Investors in Intel (NASDAQ:INTC) have enjoyed market-drubbing returns for decades, although at various times, the chipmaker's stock has stumbled from a combination of competitive pressures, economic upheaval, and internal issues. Yet over time, it has come back to handily outperform the market.
So, which companies are positioned to overcome adversity and similarly post just as dramatic increases in revenue and profits in the years to come? We asked that question of a team of Foolish investors, and they picked Xilinx (NASDAQ:XLNX), First Solar (NASDAQ:FSLR), and Ambarella (NASDAQ:AMBA).
An interesting platform for Artificial Intelligence
Chuck Saletta (Xilinx): Artificial Intelligence is one of the hottest areas in technology at the moment. Many implementations rely on software programmed as neural networks to enable flexible learning, boosting the programs' abilities to adapt to changing information and make better decisions over time. The problem with software, though, is that it relies on hardware, and if that hardware isn't up to the changing task of what matters for the artificial intelligence application, it may no longer matter.
That's where Xilinx has an opportunity to shine. As a leader in Field Programmable Gate Array technology, Xilinx makes hardware that can be reprogrammed or reconfigured to meet new demands as AI continues to evolve. Xilinx has partnered with Baidu (NASDAQ:BIDU) to help that tech giant with its deep learning and Artificial Intelligence efforts. Baidu is leveraging Xilinx's FPGAs in its infrastructure, giving it the ability to reconfigure its hardware to respond to those constant changes.
Through a combination of neuroplasticity and neurogenesis, your own brain builds new connections between neurons and rewires itself over time as you learn and place new demands on it. To the extent computer neural networking and artificial intelligence attempts to mimic the way biological brains work, using Field Programmable Gate Arrays to reprogram the hardware takes things one step closer. As the field is just now taking off, players like Xilinx may very well have a long runway of growth ahead.
Solar power just passed this critical threshold for long-term profitability
Tyler Crowe (First Solar): The knock on the solar power industry for years has been that for all of its perceived benefits -- emissions-free power, inexhaustible power source, etc. -- it still couldn't quite compete with more conventional power sources on costs. This meant the industry was incredibly reliant on subsidies, and panel manufacturers such as First Solar were consistently fighting low margins and the need to constantly innovate.
Fast-forward to today, and there has been a major paradigm shift in solar's favor. Over the past eight years, the leveled cost of energy from utility-scale solar installations has declined 85%. As a result, utility-scale solar projects have a lower per megawatt-hour cost than conventional power sources without subsidies. Furthermore, the costs for large-scale installations with some form of energy storage are closing in on conventional sources as well.
What this means for First Solar is that more and more utilities will look at solar as a viable option. Also, since the costs for these facilities have declined so much, the company is under slightly less pressure to keep prices lower to compete with conventional sources, which should help boost pricing power and margins over time.
The thing that made Intel such a fantastic stock to own was that investors caught on at just the right time. Rapidly declining costs for semiconductors made them more ubiquitous in the 80s and 90s, which was when so much of Intel's fantastic stock performance took place. It's looking like First Solar is on the cusp of a similar situation in the solar power industry, and it could lead to incredible returns for investors.
Gouge out a piece of this chipmaker
Rich Duprey (Ambarella): We knew the loss of GoPro as a customer was going to be a blow for Ambarella, and that its stock would reflect the action camera maker's decision to bring its chipmaking business in-house. But the 20% cut in Ambarella's stock value after reporting earnings due to uninspired guidance -- despite an otherwise strong showing -- shows how the chipmaker has gone from hero to zero.
This is great for investors with a long-term horizon, because the new lower price provides a great buy-in opportunity for a company that should be able to show dramatic growth in the future.
Ambarella is in the midst of growing out its first computer-vision SOC, CV1, which will greatly enhance its efforts to become an integral part of the self-driving car phenomenon. Congress just passed a bill authorizing their use, which will pave the way for their becoming a commonplace reality. And Ambarella has also reportedly had the chip make the rounds to key customers in IP security and drone markets.
The chipmaker's guidance for the year forecasts a horrible fourth quarter, but investors should have been aware that this year wasn't going to be pretty anyway. With its stock crushed by the reaction, Ambarella now trades at 25 times trailing earnings and 18 times estimates, yet analysts are still expecting it to grow earnings by at least 16% annually for the next five years.
Once the market fully digests the new path Ambarella is on, sentiment will turn once more and make the chipmaker's stock a hero again.
Chuck Saletta owns shares of Intel. Rich Duprey has no position in any of the stocks mentioned. Tyler Crowe owns shares of First Solar. The Motley Fool owns shares of and recommends Ambarella, Baidu, and GoPro. The Motley Fool has the following options: short January 2019 $12 calls on GoPro and long January 2019 $12 puts on GoPro. The Motley Fool recommends First Solar and Intel. The Motley Fool has a disclosure policy.