Some of the top growth stocks that set the market on fire in 2021 have lost their spark in the new year, thanks to the strong probability of interest rate hikes by the Federal Reserve and rising inflation.
Nvidia (NVDA -3.87%) stock, for instance, has lost nearly 12% of its value so far in 2022, while share prices of Ambarella (AMBA -1.87%) are down over 28%. Both these tech stocks had set the market on fire last year, recording roughly 120% gains thanks to the rapid growth in their top and bottom lines. However, their rich valuations have come back to bite them in 2022.
Intel (INTC -1.60%), on the other hand, has been swimming against the trend as shares of the chip giant are gaining ground. This isn't surprising, as Intel's cheap valuation and turnaround prospects have made it an enticing bet for investors.
NVDA data by YCharts.
The good part is that all these stocks seem worth buying right now for various reasons. Let's check them out.
1. Nvidia
Graphics chip specialist Nvidia is now trading at a discount to last year's levels. With a price-to-earnings (P/E) ratio of 82, the stock is not cheap by any means, but it is relatively cheaper than 2021's earnings multiple of over 90. The stock's forward earnings multiple of 51 is also lower than 2021's multiple of nearly 31.
Growth investors with a higher appetite for risk can consider using the pullback in Nvidia to buy more shares, as the chipmaker's days of terrific growth are here to stay for a few simple reasons. Analysts expect Nvidia's earnings to clock a compound annual growth rate of 40% for the next five years. That's not surprising because Nvidia dominates two lucrative markets -- video gaming and data center GPUs (graphics processing units) -- and is making notable moves in nascent but exciting technologies such as self-driving cars and the metaverse.
Image source: Getty Images.
The company is on track to finish fiscal 2022 with a 60% increase in revenue to $26.7 billion, while earnings are expected to jump to $4.34 per share from $2.50 per share in the previous year. The good part is that Nvidia looks well-positioned to sustain such eye-popping growth, as both the gaming and data center markets are built for long-term growth.
The gaming GPU market's revenue is anticipated to jump to $54 billion in 2025 from $23.6 billion in 2020, according to Jon Peddie Research, and Nvidia holds an 80%-plus share of this market. Similarly, Nvidia is the dominant force in the market for data center accelerators as well, with market research firm Omdia estimating that it has an 80% share of this space.
The data center accelerator market is expected to generate $65 billion in revenue by 2026 as compared to $13.7 billion last year, and Nvidia is setting itself up for long-term domination of this market with new products. For instance, the company plans to launch a data center central processing unit (CPU) next year, while its data processing units are also gaining traction among customers.
In all, Nvidia can maintain its growth-stock status in the long run and could regain its mojo after a disappointing start to 2022, which is why its pullback is a great opportunity for growth-focused investors.
2. Ambarella
Ambarella is another hypergrowth company that investors can land at a relatively cheaper valuation right now. The stock is currently trading at 17.2 times sales, which is a discount to last year's sales multiple of 24, and the company is showing no signs of taking its foot off the gas as it is serving two key markets.
Ambarella's computer vision chips are used in automotive cameras and internet-enabled cameras, two fast-growing markets. The automotive market, for instance, is unlocking a big addressable opportunity for the chipmaker, as the number of cameras deployed in vehicles is increasing.
Ambarella points out that vehicles with level 2 autonomous functions that are currently in production are equipped with up to eight cameras. As the autonomous capabilities of vehicles increase in the future, the number of cameras is likely to go up as well. For example, Level 5 autonomous vehicles could be equipped with as many as 20 cameras.
Ambarella is making the most of this opportunity already, as is evident from the company's fiscal 2022 third-quarter results that were released on Nov. 30, 2021 (the latest available). Its revenue had shot up 64% year over year during the quarter to $92.2 million, while adjusted earnings jumped to $0.57 per share from $0.09 per share in the prior-year period.
It is worth noting that Ambarella has generated $304 million in revenue over the trailing 12 months, and the end-market opportunity indicates that the company's rapid growth is here to stay. For instance, in the automotive market itself, Ambarella points toward a potential revenue opportunity worth $1.8 billion that it could tap into from fiscal 2023 to fiscal 2028. The company says that it has secured design wins for $700 million of that revenue opportunity already, which means that the automotive business is on track to drive substantial growth.
Throw in the upgrade cycle in the security camera market, and it is easy to see why Ambarella is promising outstanding long-term growth. More specifically, Ambarella estimates that its serviceable addressable market (SAM) in the global Internet of Things-enabled security camera market could approach $1.6 billion in fiscal 2028 from just over $800 million currently.
So, Ambarella could overcome its shaky start to 2022 and turn out to be a top growth stock in the long run, and its relatively cheaper valuation means that investors can consider buying it right away.
3. Intel
Intel stock's resurgence in 2022 isn't surprising, as the chip giant has been showing signs of progress in closing the technology gap with rivals that stunted its growth over the past few years. Chipzilla's new Alder Lake processors that are based on a competitive manufacturing process are reportedly helping it win back some share.
According to video game distribution service Steam's December hardware survey, Intel arrested its slide against Advanced Micro Devices in the CPU space. Chipzilla gained 0.82% share in the CPU market in December 2021 as compared to the preceding month. The company had lost market share in each of the preceding four months, but the launch of the Alder Lake processors in November 2021 helped it stem the slide.
Intel is now looking to raise its game with the launch of the Alder Lake laptop chips, which it claims can outperform rival AMD's offerings. Meanwhile, the chip giant is looking to make a dent in the lucrative discrete graphics card market as well, where the Arc GPUs will be powering over 50 laptop and desktop designs.
More importantly, Intel is now looking to reclaim its manufacturing lead with an aggressive long-term capital spending plan, which is the reason why Wall Street now seems optimistic about the company's future. If Intel continues to execute its turnaround strategy soundly and starts taking advantage of opportunities created by hot tech trends such as the metaverse, it won't be surprising to see the stock head higher.
That's why investors looking to buy a potential turnaround stock on the cheap can consider buying Intel. The stock has a cheap trailing P/E multiple of 11 and is trading at 2.9 times sales, both of which are lower than its five-year average earnings multiple of nearly 14 and sales multiple of 3.2. The semiconductor play may not be available for such cheap multiples if its comeback remains on track, which makes it a top stock to buy in January.
