Major stock market indices have pulled back substantially in 2022 as investors have been spooked by a variety of factors such as rising inflation, the Federal Reserve's interest rate hikes, supply chain issues, and geopolitical instability in Europe.
The S&P 500 has shed 18% of its value so far this year, while the Nasdaq-100 Technology Sector index is down 32.5%. Many formerly high-flying names have taken a beating. But this could be an opportunity for investors to buy some solid stocks at attractive valuations.
With that in mind, here are a few companies that are on track to benefit from fast-growing trends, and that could reward new investors handsomely over the next five years.
Image source: Getty Images
Metaverse stocks could take off impressively in the coming years
The metaverse is expected to gain tremendous traction in the coming years as it will enable people located across the globe to collaborate, socialize, work, and play in persistent 3D virtual worlds using personalized avatars. Cryptocurrency asset management firm Grayscale anticipates that the metaverse will evolve into a $1 trillion annual revenue opportunity in the long run.
Businesses such as Nvidia (NVDA +0.65%) and Unity Software (U 0.48%) could become big winners from the metaverse as they're already playing critical roles in building it.
Nvidia's graphics processing units (GPUs), for instance, will be required to boost the computing power of data center servers so that they can shoulder the massive data processing workloads that will be needed to support the metaverse. And data center giants are already tapping Nvidia's GPUs to build their metaverse infrastructure. Meta Platforms, for instance, is deploying 16,000 Nvidia GPUs in an artificial-intelligence-powered supercomputer that's expected to be used for metaverse applications.
NASDAQ: NVDA
Key Data Points
Assuming that metaverse adoption gains traction, don't be surprised to see an increase in the demand for Nvidia's GPUs, as the deployment of this technology will require a massive increase in available computing power. Management at chip giant Intel recently pointed out that "truly persistent and immersive computing, at scale and accessible by billions of humans in real-time, will require even more: a 1,000-times increase in computational efficiency from today's state of the art."
In other words, serving resource-hungry virtual worlds to a large swath of the world's population in real-time will require much more powerful data centers, and that's where Nvidia's chips will come into play. However, it is also worth noting that Nvidia is also primed to take advantage of the software side of the metaverse too. Its scalable Omniverse development platform gives creators and developers the tools they need to create 3D experiences.
Unity Software, on the other hand, is another play on metaverse content that investors may want to consider. Its popular platform gives developers, architects, artists, engineers, and designers the tools to create and operate real-time 3D content that can be consumed on smartphones, computers, tablets, or augmented reality and virtual reality devices.
NYSE: U
Key Data Points
Unity is enjoying healthy demand for its offerings. Its first-quarter revenue was up 36% year over year to $320 million. More importantly, its clients are increasing their spending on the company's solutions. It had a dollar-based net expansion rate of 135% in Q1. The metric compares the amount spent by a cohort of customers in a given period to the same cohort of customers in the year-ago quarter, so a reading above 100% reflects growth in the average customer's spending.
Demand for Unity's offerings looks set to increase at a tremendous pace. According to Data Bridge Market Research, the global virtual reality content space could generate $2.4 trillion in revenue by 2029, compared to just $15 billion in 2021. That would amount to a compound annual growth rate of 47%. Not surprisingly, analysts forecast that Unity's earnings will increase at an annualized pace of 69% for the next five years, making it a top growth stock to buy right now.
This smartphone stock could turn out to be a smart long-term bet
The smartphone industry is sitting on a big catalyst right now: the growth of 5G networks. In 2021, the number of 5G mobile subscriptions reportedly hit 664 million units, according to an estimate from the market researchers at Statista. That number is expected to hit 4.39 billion by 2027, which means there is a massive opportunity for investors to make money in this market over the next five years.
There are several types of companies that you could invest in to take advantage of this boom, from chipmakers to smartphone manufacturers. Skyworks Solutions (SWKS 5.80%), for instance, is a top semiconductor stock that's benefiting from 5G smartphone adoption.
SWKS Revenue (TTM) data by YCharts
In its fiscal 2022 second quarter (which ended April 1), revenue increased 14% year over year to a record $1.33 billion. Skyworks achieved this impressive growth despite a slowdown in the smartphone market. Specifically, in calendar Q1, global smartphone sales were down 11% to 311 million units, but Skyworks' strong clientele meant that it was able to overcome that slowdown.
The top five global smartphone makers are Skyworks customers, among them, Apple, Samsung, and Xiaomi. This puts the company in a solid position to take advantage of the secular growth that will be driven by 5G. This explains why analysts are expecting double-digit-percentage earnings growth annually from the chipmaker over the next five years.
What's more, Skyworks stock is a bargain right now, trading at just 12 times earnings as compared to the Nasdaq-100's multiple of 25. That offers new investors an excellent point of entry into this 5G stock.
