Technology stocks have had a difficult time on the market so far in 2022, with the Nasdaq-100 Technology Sector index losing more than 10% of its value year to date over various concerns, especially a tightening Federal Reserve policy that is expected to result in five to seven Federal funds rate hikes this year to combat surging inflation.
This tech sell-off has led to a sharp pullback in the price of high-growth companies such as Advanced Micro Devices (AMD -4.35%) and Twilio (TWLO -4.29%). But the good news is that both companies recently reported solid quarterly results that have helped their stocks regain some of the lost ground.
It won't be surprising to see shares of AMD and Twilio sustain their recent momentum and go on a bull run after a disappointing start to the year. Let's see why that could be the case.
1. Advanced Micro Devices
Advanced Micro Devices wowed Wall Street with terrific fourth-quarter 2021 results on Feb. 1 that showed a big jump in the company's earnings and revenue. The chipmaker posted record quarterly revenue of $4.8 billion, up 49% over the prior-year period, while non-GAAP earnings shot up 77% year over year to $0.92 per share.
The company scorched past analysts' expectations of $0.76 per share in earnings on $4.5 billion in revenue thanks to the terrific demand for its chips, found in a range of applications, including computers, data centers, gaming consoles, and smartphones. More importantly, AMD's 2022 guidance suggests that it won't be taking its foot off the gas anytime soon.
The chipmaker anticipates $21.5 billion in revenue this year, an increase of 31% over 2021. The adjusted gross margin is expected to increase by 3 percentage points to 51% this year, indicating that AMD is on track to deliver another huge jump in its earnings. Analysts are anticipating AMD's earnings to pop 45% in 2022 to $2.79 per share, though there is a good chance that the company's top- and bottom-line growth could be stronger than expected.
One of the reasons AMD could grow faster than anticipated in 2022 is because of its increasing influence in the server CPU (central processing unit) market. Mercury Research estimates that AMD held a 10.7% share of the server processor market in the fourth quarter of 2021, up 3.6 percentage points year over year.
The company's server revenue more than doubled year over year last quarter thanks to robust demand from both cloud and enterprise customers. In the cloud segment, Amazon, Alphabet's Google, Alibaba, Microsoft, IBM, and others expanded the use of AMD servers. In the enterprise segment, there were more than 100 products on sale based on the company's EPYC server processors.
With AMD on track to release a new generation of server processors this year that will be based on a more efficient manufacturing process that promises a 25% increase in performance over the current offerings, the chipmaker can capture a bigger share of this massive market. Allied Market Research estimates that the server processor market could hit $16 billion in revenue by 2023, which could give AMD's growth a nice shot in the arm.
All this indicates that AMD's recent stock market momentum is sustainable. More importantly, the tech stock seems built for long-term growth as its earnings are expected to increase at an annual rate of 34% for the next five years, suggesting that the company can go on a bull run that could last for a long time to come.
Twilio is the bigger stock market loser of the two companies discussed in this article, as the chart above shows. But its latest quarterly results indicate that a turnaround may have arrived.
Twilio stock shot up impressively following the release of its fourth-quarter 2021 results on Feb. 9 as the company's top and bottom lines were better than Wall Street's expectations. Revenue jumped 54% year over year to $843 million, driven by solid growth in the company's customer base, higher spending by customers, and the acquisitions of startups like Segment and Zipwhip.
Organic growth was also strong at 39% year over year. Twilio's non-GAAP net loss came in at $0.20 per share as compared to an adjusted profit of $0.04 per share in the year-ago period, driven by acquisition-related costs and higher stock-based compensation. However, the numbers were better than analysts' expectations of a $0.21 per share loss on revenue of $774 million.
The top-line performance was way ahead of expectations as Twilio used its acquisitions to its advantage and drove additional customer spending. This is evident from the dollar-based net expansion rate of 130% in the fourth quarter (excluding political spending in the quarter and in the prior-year period), which means that customers increased their adoption of Twilio's offerings.
The dollar-based net expansion rate increases when active customers "increase their usage of a product, extend their usage of a product to new applications or adopt a new product," according to Twilio. Looking ahead, Twilio's acquisitions and the fact that it operates in the fast-growing cloud communications market will continue to drive impressive growth. This is evident from its guidance, which calls for a 46% year-over-year revenue increase this quarter to $860 million.
Organic revenue growth is also expected to remain robust at 33% year over year. The guidance easily outpaced analysts' expectations of $806 million, and it was a key reason the stock popped. What's more, the company's revenue is expected to increase 29% in 2022, followed by a 30% increase in 2023 as per consensus estimates. So it won't be surprising to see Twilio stock move higher as the year progresses.
Even better, investors still have an opportunity to buy this cloud stock on the cheap as it is trading at 12.6 times sales, lower than last year's sales multiple of 17.5. Given that Twilio could go on a bull run after its latest results, it might be a good idea to buy its shares while they are relatively cheaper than before.