Technology stocks have lost their bearings in the first month of 2022, as evident from the 18% decline in the NASDAQ-100 Technology Sector index.
Due to the Federal Reserve's hawkish stance that could lead to at least four quarter-point rate hikes this year, investors have pressed the panic button. Higher interest rates are bad news for technology stocks because investors are tempted to put their money into safer assets such as bonds or value stocks instead of richly valued companies.
However, the good part is that the sell-off in tech stocks has opened an opportunity for savvy investors to buy some fast-growing companies at attractive valuations. More importantly, these companies look destined for long-term growth because of the hot tech trends they can take advantage of. Let's see why putting $5,000 into these potential growth stocks could be a good idea amid the market correction.
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Metaverse stocks have become cheap
The metaverse is the latest buzzword in tech as it promises to erase the boundaries between the virtual and the real worlds. Imagine putting on a virtual reality (VR) headset and being transported to a classroom to study or to a playground where you can play your favorite sport with your friends, all without leaving home.
Meta Platforms (META 2.98%) is one of the pioneers of this concept. CEO Mark Zuckerberg pointed out in October 2021 that the company's focus would be to "bring the metaverse to life and help people connect, find communities, and grow businesses." Zuckerberg believes that "the next chapter for the internet" has arrived to give people an immersive experience.
Not surprisingly, Meta is making the most of this emerging opportunity. According to third-party estimates, it is expected to become an $800 billion market by 2024, driven by several verticals such as gaming, live entertainment, and social media. Zuckerberg points out that the company spent $10 billion last year to build "multiple generations of our VR and AR products at the same time, as well as the new operating system and development model, the digital commerce platform, content studios, and of course, the social platform."
Zuckerberg expects these investments to head higher over the next few years as the company tries to unlock a new opportunity that could significantly boost its already-impressive growth. Meta Platforms reported a 35% year-over-year increase in revenue in the third quarter of 2021, driven by the growth of the advertising business. The company is expected to finish fiscal 2021 with $117.6 billion in revenue, an increase of 37% over 2020, while 2022 revenue growth is expected to be robust as well at 19%.
Analysts expect Meta Platforms' earnings to increase at an annual pace of 21% for the next five years, but lucrative opportunities like the metaverse could help it grow faster. With Meta Platforms' stock now trading at 22 times trailing earnings -- a discount to the S&P 500's earnings multiple of 27 -- its pullback means that investors can buy this potential growth stock on the cheap.
Micron Technology (MU 3.06%) is another metaverse stock trading at dirt-cheap levels following its 15% pullback in 2022. Trading at just 13 times trailing earnings, buying Micron stock looks like a no-brainer given its estimated annual earnings growth of 23.8% for the next five years.
While Micron is already taking advantage of the booming demand for memory chips used in several applications ranging from data centers to computers to smartphones, the metaverse would create the need for more memory chips. That's because data centers handling metaverse workloads will need more dynamic random access memory (DRAM) to boost computing power.
It is not surprising to see why analysts expect Micron's growth to pick up the pace in the next couple of years. The chipmaker is expected to report a 20% increase in revenue in fiscal 2023 following an estimated 16% increase this fiscal year, which is why the stock's dip looks like a great opportunity to buy a fast-growing tech company at a discount.
An opportunity to tap into other fast-growing tech trends
The metaverse is just one of the many fiery trends playing out in the technology sector right now. Zoom Video Communications (ZM 3.49%), for instance, has benefited from the growing demand for video communications in the wake of the pandemic, and it is unlikely to take its foot off the gas. That's because the video conferencing market is expected to grow at an annual rate of 23% through 2027 and exceed $75 billion in revenue, according to Global Market Insights.
Zoom is one of the best ways to play this growth. According to a third-party estimate, it was reportedly the top player in this market last year with a global share of 48.7%. That's not surprising, as the company's customer count is growing at an impressive pace. In Q3 of fiscal 2022, Zoom saw an 18% year-over-year spike in customers to 512,000. Organizations that have more than 10 employees account for two-thirds of the company's overall revenue.
Additionally, the number of customers contributing more than $100,000 in trailing-12-month revenue was up a whopping 94%, indicating that Zoom is generating more money from clients. This is also evident from a net dollar expansion rate of over 130%, the 14th consecutive quarter of the metric remaining above that mark.
The secular growth of the market Zoom operates in and the company's robust market share explains why analysts expect its revenue to increase 54% this year, while earnings are estimated to increase 46%. The long-term forecast also appears to be bright, with analysts expecting double-digit earnings growth over the next five years.
However, Zoom could clock faster earnings growth in the future as the company is also looking to tap into the metaverse. That's why it would be a good idea to consider buying Zoom stock as it is trading at a relatively cheaper 37 times earnings right now compared to last year's earnings multiple of nearly 49. Its price-to-sales ratio of 11.3 is also lower than last year's average of 14.3. Zoom has a solid balance sheet with $5.4 billion in cash and just $97 million in debt.
All of this indicates that investors could be making a smart move by buying the dip in Zoom stock.
