The Nasdaq-100 technology index is officially trading in a bear market, having fallen 25% from its all-time high. The decline has been driven by much steeper losses in individual tech stocks, even those that are typically considered high quality because of their strong growth or profitability. The fact is, if investors liked a particular stock a year ago, and that stock is currently down by 50% or more since then, they should probably love it even more right now -- assuming nothing has fundamentally changed within the core business.
Three Motley Fool contributors think investors should take full advantage of the current discounts in shares of Nvidia (NVDA 3.65%), Airbnb (ABNB 2.77%), and Zscaler (ZS 3.48%) by buying them now and holding them for the ultra-long term. Here's why.
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At the pinnacle of innovation
Anthony Di Pizio (Nvidia): The semiconductor industry has never been more important to global manufacturing. Most of the modern-day electronics consumers know and love require advanced processing power to function, and that's made possible by innovations in the chip sector. Nvidia produces some of the most sought-after hardware on the planet, whether it's for gaming, data centers, or artificial intelligence, but the company is broadening its horizons to become more than just a chipmaker.
Nvidia's future growth might come from its two smallest segments, which made up just 9% of the company's $8.2 billion in revenue in the fiscal first quarter of 2023 (Nvidia's fiscal year ends Jan. 30). The first is professional visualization, which is home to the company's revolutionary virtual-world-building platform called Omniverse. It's being used for everything from mapping environments for self-driving technology development to creating digital twins of manufacturing and fulfillment centers with millimeter accuracy, which allows companies to carefully configure operations before moving a single piece of physical equipment. The segment's revenue grew 67% year over year in the recent quarter to $622 million.
But Nvidia's automotive and robotics unit might be its most exciting. Despite generating a tiny $138 million in revenue in Q1, it has a revenue pipeline that now tops $11 billion, which it expects to realize gradually over the next six years. It stems from blockbuster deals with 35 leading car manufacturers like Mercedes Benz, as well as Tata Motors' Jaguar and Land Rover, to provide autonomous driving hardware and software. Mercedes will be one of the first to roll out the technology, starting with its 2024 model vehicles.
In the short term, the gaming and the data center segments will continue to propel Nvidia forward. Revenue from the data center segment alone grew 83% to $3.7 billion in Q1, with revenue from cloud computing customers specifically more than doubling. It far outpaces the company's overall sales growth of 46%.
Nvidia stock has fallen 43% since hitting its all-time high of $346 in November last year, and that might be an opportunity to start buying a position with the intention of never selling, given the company's focus on futuristic technologies.
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A new approach to vacationing
Jamie Louko (Airbnb): With the market's wild volatility, high-quality and low-quality tech stocks alike seem to be dropping. This can be painful for long-term investors, but it also provides opportunities to add more to your highest-conviction investments. Airbnb is one for me because it is continuing to disrupt the way consumers search for vacations.
Airbnb thrives on uniqueness and having features that are unrivaled by traditional competitors. The company has one of the most extensive and creative catalogs of listings, with over 6 million active listings, including unique options like mini-islands, treehouses, and cave homes. It also has features that have never been incorporated into traditional processes for booking vacations, like categories and the "I'm Flexible" option. These features are unique to Airbnb and allow consumers to decide where to stay based on factors other than location and specific vacation dates.
With these unique characteristics, Airbnb has gathered quite the brand reputation. In Q1 2022, the company had over 102 million nights and experiences booked on the platform, which grew 59% year over year. This was the first time the company surpassed 100 million nights booked. The company's Q1 revenue also grew 70% year over year to $1.5 billion. While some of this growth is likely partially due to the pent-up demand for travel, it still signals that the company's competitive advantages are attracting more consumers to the platform.
This adoption should continue over both the short and long term. The company is guiding for $2.08 billion in revenue in the second quarter, representing a 56% expansion year over year. Over the long term, the company will have to continue innovating to create a top-tier platform, but Airbnb generated more than $2.8 billion in free cash flow during the trailing 12 months to invest in its platform. This grew over 600% year over year, and with this much reinvestment, Airbnb could strengthen both its competitive advantages and its brand.
With shares valued at 28 times free cash flow, Airbnb looks fairly valued today. Continued revenue and nights booked expansion will show that Airbnb's reputation is building, and with its one-of-a-kind platform, I think Airbnb could be a great investment to buy and never sell.
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The market leader in network security
Trevor Jennewine (Zscaler): In the past, organizations protected their data and applications with a castle-and-moat strategy. That means all critical resources were stored on premise, behind a firewall, and all requests were routed through a central hub where security policies were enforced. But the rise of cloud computing and remote work have fundamentally changed the IT world, rendering old-school security measures ineffective.
Today, data and applications often live in the cloud and workforces are increasingly mobile, meaning critical resources exist beyond the borders of a corporate firewall. That has created a need for a new kind of network security, and Zscaler is leading the charge. Its zero-trust platform -- known as a secure access service edge (SASE) -- handles the inspection of network traffic, delivering security from the cloud, which eliminates the need for costly on-site appliances. Better yet, Zscaler provides employees with a fast, secure connection to corporate resources and the open internet from any device or location.
Also noteworthy, the company operates the largest security cloud in the world, processing over 240 billion requests and blocking millions of threats each day. To that end, Zscaler captures a tremendous amount of data, and that theoretically makes its artificial intelligence-powered security engine uniquely effective. As proof of its best-in-class status, research company Gartner has recognized Zscaler as the industry leader for the last 11 years.
That has translated into strong financial results. Revenue soared 61% to $970 million over the past year, due in part to a strong land-and-expand growth strategy -- Zscaler's retention rate has exceeded 125% from the last six quarters, meaning the average customer is spending at least 25% more each year. The company is still unprofitable under generally accepted accounting principles (GAAP), but free cash flow climbed 45% to $184 million over the past year.
Zscaler is set to maintain that momentum. Management puts its market opportunity at $72 billion, and by 2025, Gartner says that "at least 60% of enterprises will have explicit strategies and timelines for SASE adoption ... up from 10% in 2020." As the long-standing industry leader, Zscaler should benefit greatly from that trend. That's why this growth stock is worth buying, and it's why I plan to hold forever.
