The S&P 500 index has appreciated 22% in 2021, but there are some stocks that have easily outpaced those gains. Nvidia (NVDA -3.33%), Synaptics (SYNA 3.09%), and Applied Materials (AMAT 1.46%) are three stocks that have absolutely crushed the broader market so far this year.
As we enter the final month of the year, investors who have missed the terrific rally in these tech stocks should consider taking a closer look at them since they could repeat their sizzling performance in 2022. Even better, these companies could sustain their strong run beyond next year as well thanks to a set of impressive catalysts. Let's look at the reasons why investors should consider adding Nvidia, Synaptics, and Applied Materials to their portfolios.
1. Nvidia
Nvidia has been a stock market darling in 2021 thanks to the booming demand for its graphics cards, which are used across a wide variety of applications such as personal computers (PCs), data centers, automotive, and other markets. The terrific graphics card demand has translated into outstanding growth at Nvidia. The company's fiscal 2022 third-quarter revenue was up 50% year over year to $7.1 billion, while diluted earnings per share shot up 60% to $1.17.
The gaming and data center businesses that produced 86% of the company's total revenue last quarter grew 42% and 55%, respectively, year-over-year, and they are unlikely to slow down any time soon. Nvidia controls 83% of the discrete graphics card market, and it was the only GPU (graphics processing unit) supplier to have increased shipments in the third quarter, according to Jon Peddie Research.
The chipmaker has been able to increase the supply of its graphics cards to meet the robust end-market demand. Nvidia's strong grip over this space is great news, as the GPU market's revenue is expected to jump to $44 billion by 2023, setting the stage for further growth in the gaming business. Meanwhile, the growing deployment of hyperscale data centers and the adoption of artificial intelligence (AI) applications are turning out to be tailwinds for Nvidia.
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The hyperscale data center market is expected to grow at nearly 27% a year through 2025, according to market research provider TechNavio. The demand for data center accelerators, on the other hand, is reportedly increasing at an annual pace of nearly 37%. With Nvidia holding 80% of the cloud and data center accelerator market as per Omdia's estimates, its data center business looks set for impressive growth.
What's more, emerging applications such as the metaverse have given Nvidia bulls more reasons to cheer in recent weeks, as they could add to the already-solid catalysts the company is sitting on. In all, it isn't surprising to see why analysts are expecting Nvidia to deliver annual earnings growth of almost 40% for the next five years, which could help it remain a top growth stock for years to come.
2. Synaptics
Synaptics is winning big from the growing demand for Internet of Things (IoT) applications. The company got 55% of its total revenue from IoT products in the first quarter of fiscal 2022, recording 70% year-over-year revenue growth in this segment.
The impressive growth of the IoT business led to a 13% year-over-year increase in Synaptics' quarterly revenue to $372.7 million. More importantly, Synaptics' guidance indicates that its streak of strong growth is here to stay. The company expects $405 million in revenue this quarter and earnings of $3.05 per share, which means that its top and bottom lines could jump 13% and 32%, respectively, over the year-ago period.
The IoT business is expected to produce 58% of Synaptics' total revenue this quarter, indicating that the segment's influence on the company's top line is increasing. Looking ahead, the IoT business could keep getting better, as Synaptics is witnessing strong demand for its wireless chips, which are finding use in several applications ranging from handheld scanners to fitness equipment.
Synaptics CEO Michael Hurlston pointed out on the November earnings conference call that "our wireless products are seeing increased design win traction across a long tail of customers and applications, giving us confidence in believing we will achieve our target of doubling revenues again over the next 18 months."
A third-party estimate points out that the cellular IoT market could clock 25.7% annual growth through 2027 as the need for chips and modules to connect different things increases. As a result, the demand for Synaptics' wireless chips powered by Wi-Fi and Bluetooth should continue to increase in the long run.
With Synaptics trading at 25 times forward earnings, compared to the NASDAQ-100 index's forward earnings multiple of 30, and its earnings expected to grow at 15% a year for the next five years, it looks like a solid pick for investors looking to get into an IoT stock right now.
3. Applied Materials
The world is facing a semiconductor shortage, and Applied Materials is one of those companies helping to alleviate the lack of chips that has hamstrung several industries, ranging from smartphones to automotive to computers. The demand for Applied Materials' semiconductor manufacturing equipment has jumped impressively over the past year and a half, translating into strong top- and bottom-line growth.
AMAT Revenue (TTM) data by YCharts
Applied Materials' revenue in the recently concluded fiscal 2021 (ending on Oct. 31, 2021) increased 34% over the prior year to $23 billion, while adjusted earnings shot up 64% year-over-year to $6.84 per share. The company can sustain such impressive growth in the new fiscal year thanks to the terrific growth in its orders.
The orders in Applied Materials' semiconductor systems business, which produced 70% of its revenue last year, increased 78% in fiscal 2021. What's more, the company closed the year with momentum on its side, as semiconductor systems orders shot up 136% year-over-year in Q4. It is also worth noting that Applied Materials expects its order book to grow at a faster pace in the first half of fiscal 2022 as compared to the second half of fiscal 2021.
Applied Materials CFO Bob Halliday's comments on the November earnings call indicate just why the company sees an acceleration in its order book:
Industrywide, we are tracking 59 fab projects with available and announced expansion capacity of 3.5 million wafer starts. These projects represent potential equipment spending of around $300 billion in future years.
All of this indicates that Applied Materials is set up for solid long-term growth, as semiconductor companies are expected to spend a huge amount of money to increase capacities and meet the booming end-market demand. As a result, Applied Materials is an attractive stock to buy right now given that is trading at just 17 times forward earnings and is expected to register 16%-plus annual earnings growth over the next five years.
