The sell-off in technology stocks this year has led to a sharp pullback in the Nasdaq-100 Technology Sector index, which has lost nearly 25% of its value so far in 2022.
From rising interest rates to surging inflation to chances of a recession, there are several reasons why high-growth tech stocks have lost their wheels this year. Nvidia (NVDA 3.65%) and Himax Technologies (HIMX 0.61%) are two such high-flying stocks that are having a terrible 2022, even though they have been registering solid growth quarter after quarter.
The robust demand for Nvidia's graphics cards in PCs (personal computers), data centers, and workstations, and the application of Himax's chips in multiple end markets including smartphones, automotive, tablets, and televisions, have ensured eye-popping growth for these two chipmakers. More importantly, both companies seem set for robust long-term growth given the catalysts they are sitting on.
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Let's look at the reasons why buying these two beaten-down stocks right now could be a great move for the long run.
1. Nvidia
Nvidia's sharp drop in 2022 has brought the stock's price-to-earnings ratio down to 50, which is a discount to its five-year average earnings multiple of 58. Savvy investors should consider buying Nvidia stock at this valuation for two reasons.
First, it has never been this cheap in the past year.
NVDA PE Ratio data by YCharts
Second, Nvidia's huge end-market opportunity indicates that its terrific revenue and earnings growth are sustainable over the long run.
At its investor day in March, Nvidia pointed out that the addressable market for its hardware and software platforms stands at $1 trillion. According to Nvidia, this massive opportunity is distributed across gaming, automotive, artificial intelligence (AI) enterprise software, chips and systems, and the company's omniverse enterprise software.
The company's estimated addressable size indicates that it has a lot of room to grow its business. That's because Nvidia generated $27 billion in revenue in fiscal 2022, which ended on Jan. 30, 2022. Its revenue was up 61% last fiscal year, while adjusted earnings increased 78% to $4.44 per share. What's more, Nvidia's share of the markets it operates in and the company's product development moves indicate that it is in a strong position to corner a significant chunk of the addressable market it is sitting on.
For instance, the company sees a $100 billion long-term revenue opportunity within gaming, a segment that produced $12.5 billion in revenue last year. The booming demand for graphics cards used in computers and consoles will be a key growth driver for the gaming market, and Nvidia is the leading player in this space. Nvidia commands just over 80% of the market for gaming graphics cards. At the same time, the company is dominating the nascent cloud gaming market as well, which could turn out to be another multibillion-dollar opportunity for the company.
Additionally, Nvidia is expanding its presence into markets that it had left untapped so far. The company will be introducing data center CPUs (central processing units) in the first half of 2023 to mark its entry into a market that's currently dominated by Advanced Micro Devices and Intel. It is estimated that $19 billion worth of server CPUs will be sold in 2023, apart from $11 billion worth of data center GPUs.
Nvidia already dominates the data center GPU market with a more-than-80% share. Its foray into the server CPU market would unlock another major growth opportunity for the chipmaker and help sustain its terrific pace of growth. Throw in Nvidia's improving prospects in the automotive market -- where it sees a $300 billion addressable revenue opportunity -- and it becomes easy to see why analysts are expecting more than 30% annual earnings growth from the company. As such, investors may want to accumulate this beaten-down tech stock before it starts taking off.
2. Himax Technologies
It is surprising to see how cheap Himax Technologies stock is right now despite the terrific growth that it has been clocking. Trading at just 3.5 times trailing earnings and 0.99 times sales, buying Himax stock right now looks like a no-brainer.
The company's revenue shot up 74% in 2021 to $1.55 billion, while gross margin increased to a record 48.5% from 24.9% in 2020. The surge in Himax's revenue and margins sent its adjusted earnings to $2.65 per share in 2021 from $0.30 per share in 2020. More importantly, the Taiwan-based company's rapid growth should be sustainable for a long time to come, as it is serving several fast-growing markets.
Himax's chips are used for powering the displays of televisions, smartphones, notebooks, tablets, automotive touchscreens, and even virtual reality devices. The company's robust share of these markets is the reason behind its terrific growth, and its key end markets are set to expand at a nice pace.
Automotive, for instance, is expected to become Himax's top segment in terms of revenue this year. The company recorded 110% growth in automotive revenue last year, and it expects that to double once again in 2022. That's not surprising given the growing deployment of touchscreens and virtual cockpits in vehicles. According to a third-party estimate, the automotive digital cockpit market could generate $36 billion in revenue by 2026, compared to $15 billion in 2018.
Meanwhile, the automotive touchscreen market is expected to grow by 22.5 million units over the next three years. It is also worth noting that Himax is looking to make the most of emerging tech trends such as the metaverse, as its chips are expected to play a critical role in the development of augmented reality and virtual reality devices.
In all, Himax Technologies should be able to continue growing at a strong pace in the long run as the applications where its chips are deployed continue to expand. That's why it may be a good idea for investors to start buying shares of this semiconductor play while they are still down and are available cheaply, as Himax's consistently strong growth could send the stock on a bull run.
