The Federal Reserve sent the stock market packing last week with its hawkish stance and a 50-basis-point interest rate hike that triggered a massive sell-off on May 5.
The Dow Jones Industrial Average fell 3.12% on that day, dropping 1,063 points in a single session. Tech stocks were in for more pain as the Nasdaq Composite was down 4.99%. That wasn't surprising as richly valued tech stocks tend to take a beating when interest rates rise. Throw in the surging inflation and a contracting economy, and it is easy to see why tech investors panicked and hit the sell button.
But the tech stock sell-off has opened a great opportunity for savvy investors to buy some fast-growing companies with terrific long-term potential at relatively attractive valuations. Let's look at three of them.
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Apple and Micron Technology are solid bets on the 5G smartphone market
The growing adoption of 5G smartphones has turned out to be a big tailwind for the likes of Apple (AAPL 1.27%) and Micron Technology (MU -0.60%) in various ways. While Apple has benefited from higher shipments and an increase in the average selling price of the iPhone, the growing need for more computing power and storage in 5G devices has given Micron a big shot in the arm.
Apple delivered record revenue for its fiscal 2022 second quarter, which ended on March 26. Revenue was up 9% year over year to $97.3 billion, while adjusted earnings jumped by a similar margin to $1.52 per share. The iPhone played an important role in Apple's growth last quarter, generating $50.6 billion in revenue. This figure was better than the market's expectation of $48.4 billion in iPhone revenue.
It is worth noting that Apple's iPhone revenue increased at a time when the overall smartphone market slumped. Global smartphone sales were down 11% in the first quarter of the calendar year, and Apple was the only major original-equipment manufacturer to have increased its shipments year over year, according to market research firm Canalys.
Apple controlled 18% of the global smartphone market at the end of the first quarter of 2022 as compared to 15% at the end of the prior-year period. More importantly, Apple looks set to continue its domination of the 5G smartphone market and significantly increase its shipments over the long run, especially considering its moves to boost the customer base with products such as the lower-priced iPhone SE.
And at 25 times trailing earnings, Apple looks like a smart tech stock to buy given that it is trading at a discount to last year's average earnings multiple of 32.
As for Micron, the memory specialist has been enjoying a nice period of revenue and earnings growth amid favorable memory-market conditions.
MU revenue (TTM). Data by YCharts. TTM = trailing 12 months.
The chipmaker's mobile business unit (MBU) is its second-largest source of revenue, generating $3.78 billion in the first six months of fiscal 2022, which ended on March 3. The MBU has produced nearly a quarter of Micron's revenue this fiscal year, with the segment increasing 15% over the prior-year period.
Micron's MBU is built for long-term growth as 5G smartphones are using more DRAM and NAND flash memory chips. According to management, the ongoing transition to 5G is driving 50% higher DRAM content and a doubling of NAND content.
With 5G smartphone subscriptions expected to jump from an estimated 664 million units in 2021 to almost 4.4 billion in 2027, Micron could enjoy healthy volume growth in DRAM and NAND sales. Throw in the company's moves to increase its memory-market share, and it is easy to see why analysts expect its earnings to grow at 30% a year for the next five years. Buying this semiconductor stock at this valuation looks like a no-brainer considering that it is trading at just 8.8 times earnings despite its terrific growth and solid potential.
Video games and data centers could send this stock soaring
The video gaming and data center markets have been booming in recent years, and Nvidia (NVDA -3.33%) has been winning big from the same.
Nvidia's graphics cards power data centers and personal computers, with the company holding a solid position in both markets. In gaming GPUs (graphics processing units), Nvidia has a market share of 81% as per Jon Peddie Research.
It enjoys a similar share of the market for data center chips. The dominant position in these markets is great news for Nvidia as the demand for data center GPUs could exceed $20 billion by 2027, growing at a compound annual rate of 42%.
Similarly, the revenue from the PC graphics card market could hit $54 billion by 2025. Now, Nvidia has already been delivering terrific growth thanks to these two markets. Gaming and data center markets produced nearly 86% of the company's total revenue in fiscal 2022, which ended on Jan. 30. Powered by these markets, the chipmaker's total revenue shot up 61% last fiscal year to $26.9 billion, while adjusted earnings per share were up 78% to $4.44.
With Nvidia set to boost its presence in data centers and positioned for a massive opportunity in the automotive space, it is no surprise to see that analysts expect it to clock annual earnings growth in excess of 30% over the next five years.
Lastly, the valuation makes Nvidia an enticing growth stock to buy right now. It is trading at 48 times trailing earnings as compared to 90 times last year, and it could grow at a faster-than-expected pace thanks to its impressive share in a couple of huge markets and the emerging opportunities it is sitting on.
