So far, the Nasdaq Composite is the only major index to officially enter a bear market. The Nasdaq is down about 28% from its all-time high, but with many high-profile companies down even more, this market downturn feels much more severe.
It's comforting to remember that stocks are not lottery tickets. If you buy a stock, you own a piece of a business. And if that business is growing revenue and profits, the stock is going to go up at some point. That's why all bear markets have been followed by longer periods of rising stock prices.
Three widely followed companies just reported better-than-expected revenue results. After falling significantly year-to-date, these stocks could be great buys.
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1. Microsoft
In Microsoft's (MSFT -1.50%) fiscal third quarter (which ended March 31), revenue grew 18% year over year, with adjusted earnings up 14%. Both numbers beat the Wall Street consensus.
Management credited strong demand for cloud services and better-than-expected commercial bookings growth of 28% for the strong results last quarter. Indeed, Microsoft Azure continues to look strong for the software giant. Azure and other cloud services grew 46% year over year, which is notably faster than Amazon, which reported cloud growth of 37% last quarter.
Microsoft is performing very strong in all segments. LinkedIn's revenue growth accelerated from 25% in the year-ago quarter to 34%, and Office consumer products and services also accelerated from a 5% rate in the year-ago quarter to 11% this year.
The stock is down 20% year-to-date. Microsoft's valuation at the beginning of the year might have been on the high side, but at a current price-to-earnings ratio of 28, it is looking more attractive. With the company posting double-digit revenue and earnings growth, the stock appears fairly valued at these levels and should deliver good returns over the long term.
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2. Advanced Micro Devices
Advanced Micro Devices (AMD 0.01%) has delivered staggering returns over the last few years as it's taken market share away from Intel's dominant position. While AMD has been behind the lead of Nvidia in the graphics processing unit (GPU) market, a rising tide in the semiconductor industry has lifted all boats.
AMD reported results that blasted away Wall Street estimates in the first quarter. Revenue of $5.9 billion beat analyst estimates of $5.01 billion, while adjusted earnings per share of $1.13 demolished estimates of $0.91.
Excluding the acquisition of Xilinx, AMD's adjusted revenue was $5.3 billion, representing an increase of 51% year over year. Strong demand for GPUs drove a 33% increase in the computing and graphics segment. But the most impressive performance was from the enterprise, embedded, and semi-custom business, with revenue up 88% over the year-ago quarter.
AMD reported record EPYC processor sales used in servers and strong demand for Sony and Microsoft's video game consoles, which are powered by custom AMD processors. For the third consecutive quarter, EPYC processor sales more than doubled, reflecting strong demand from cloud service providers that use high-performance chips to process large data workloads.
AMD raised full-year guidance and now expects revenue to grow about 60% over 2021. Investors are currently paying only 20 times 2022 earnings estimates for shares, which is incredibly cheap for such a fast-growing business. The addition of Xilinx will extend AMD's growth opportunity to connected devices and other data-intensive workloads. The company estimates the opportunity at $135 billion.
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3. Airbnb
Airbnb (ABNB 0.84%) is enjoying tremendous growth after the pandemic slowed travel worldwide. In the first quarter, revenue jumped 70% year over year to $1.5 billion, beating analyst estimates of $1.45 billion. While Airbnb reported a net loss of $19 million, it was enough to slightly surpass expectations.
The strong start to 2022 continues a string of outstanding quarters over the last year. Airbnb continues to see people visiting non-urban areas close to home, with long-term stays remaining the fastest-growing category. The company also says that people are booking travel destinations further in advance, with lead times surpassing 2019 levels at the end of the first quarter.
It's encouraging that Airbnb is experiencing this much pent-up demand even with economic headwinds, such as higher gas prices. Overall, nights and experiences booked on the platform surpassed pre-pandemic levels and crossed the 100 million mark for the first time in the company's 15-year history.
Most importantly, Airbnb's growth is starting to light a fire under profitability -- a good reason to consider buying the stock. Over the last four quarters, free cash flow totaled $2.9 billion. That puts Airbnb's market cap at just 27 times trailing free cash flow, which is too low for a top travel service that is experiencing this much momentum.
