So far, 2022 his hasn't been a good year for growth stocks as investors have been spooked by the Federal Reserve's hawkish stance, the surge in inflation, ongoing supply chain issues, and the geopolitical instability in Europe.
These factors have led investors to hit the sell button on richly valued tech stocks that have historically outperformed the market by huge margins. Advanced Micro Devices (AMD 0.43%), Taiwan Semiconductor Manufacturing (TSM 0.58%), and Palo Alto Networks (PANW -2.92%) are three such stocks that have borne the brunt of the sell-off in 2022.
AMD data by YCharts
However, all three companies provide key products and services that should remain in demand for years to come. Let's take a closer look at their prospects and check why they could turn out to be solid investments for the next 10 years and beyond.
1. Advanced Micro Devices
Advanced Micro Devices' chips are used in a variety of applications ranging from personal computers (PCs) to workstations to data centers to gaming consoles, and all of these markets seem built for robust long-term growth.
The global PC market, for instance, is expected to hit nearly $162 billion in revenue by 2030 as compared to $145 billion in 2020. That may not look very impressive at first, but investors should note that AMD's market share gains against Intel in the PC processor market put it in a solid position to corner a big chunk of the end-market opportunity. According to Mercury Research, AMD controlled 16.2% of the desktop processor market and 21.6% of the notebook processor market at the end of 2021.
The company has also been gaining ground in the server processor market, with its share increasing to 10.7% at the end of 2021 from 7.1% in the prior-year period. Now, the global server market is expected to clock $245 billion in revenue by 2030 as compared to $93 billion in 2020, so AMD's growing share of this space bodes well for the company. As it turns out, analysts expect AMD's server market share to increase to 19% next year, and it is taking steps to corner a bigger share of the server opportunity in the long run as well.
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The good part is that AMD is already clocking outstanding growth, with its revenue for the first quarter of 2022 increasing 71% year over year to $5.89 billion while earnings jumped 117% to $1.13 per share. For the full year, AMD anticipates revenue to increase 60% to $26.3 billion. Even better, analysts are anticipating nearly 33% annual earnings growth from the company over the next five years, a pace that it could sustain beyond that as well thanks to multiple catalysts and lucrative end markets.
2. Taiwan Semiconductor Manufacturing
The demand for semiconductors has turned out to be a massive tailwind for TSMC. The company's revenue for the first quarter of 2022 shot up 36% year over year to a record $17.6 billion. The company's adjusted earnings also increased by 45%.
TSMC is a foundry that's known for manufacturing chips for big names such as AMD, Apple, Nvidia, Qualcomm, and others. What's more, 81% of the company's revenue comes from supplying smartphone and high-performance computing chips used in data centers to its customers. It is also witnessing robust traction in the automotive market, with the platform recording 26% quarter-over-quarter growth in Q1.
With the demand for smartphone, automotive, and data center chips expected to enjoy secular growth in the long run, TSMC can be expected to maintain its terrific growth for a long time to come. For instance, the demand for 5G chipsets is anticipated to increase at an annual pace of nearly 22% through 2030. The automotive market, on the other hand, is consuming more chips thanks to the electrification of vehicles and the addition of more electronics such as driver assistance systems, virtual cockpits, and others.
As TSMC reportedly controls more than half of the global semiconductor market, according to market research firm TrendForce, its days of high growth are here to stay. Its guidance also suggests the same, with Q2 revenue expected to increase 35% year over year at the midpoint of its guidance range of $17.6 billion to $18.2 billion.
The five-year annual earnings growth forecast of 20% is also healthy, and it won't be surprising to see TSMC grow at such an impressive pace beyond that as well. That's because the global semiconductor market is expected to generate $1 trillion in revenue by 2030 as compared to $500 billion last year, and TSMC can win big from the same given its dominant position in this market.
3. Palo Alto Networks
Spending on cybersecurity solutions is expected to jump to $500 billion in 2030, according to a third-party estimate, with the market expected to clock a 12% annual growth rate through the end of the decade. Palo Alto Networks is one of the best ways to play this opportunity given its growing influence over the cybersecurity market.
The company has witnessed steady growth in its share of the market for cybersecurity devices, such as firewalls, over the years. In fact, Palo Alto was the top-ranked seller of cybersecurity devices in the second quarter of 2021 with a market share of 18.9%. It is worth noting that Palo Alto was nowhere in the picture a decade ago when Cisco Systems used to be at the top of the market. However, Cisco has now slipped to second place in cybersecurity appliances and Palo Alto is unlikely to yield its top spot to its rivals.
That's because Palo Alto has built a solid sales pipeline that should help it sustain its impressive pace of growth. The company expects its full-year revenue to land at $5.45 billion at the midpoint of its guidance range, which would be a 28% increase over the prior year. Additionally, the company had remaining performance obligations worth $6.3 billion at the end of the fiscal second quarter that ended on Jan. 31, 2022.
This metric represents the total value of customer contracts for which services haven't been provided yet. The 36% year-over-year increase in the same indicates the robust demand for Palo Alto's offerings.
In all, the robust end-market opportunity and Palo Alto's solid market share indicate why the company's bottom line is expected to grow at 25% a year for the next five years. But don't be surprised to see this top cybersecurity pick grow at a faster pace given the bright prospects of the market it operates in.
