Among the major stock indexes, the tech-heavy Nasdaq Composite has been hit the hardest, down 24% year-to-date. But even the safest blue-chips have fallen, as demonstrated by the 12% dip in the Dow Jones Industrial Average.
These market downturns can be frustrating, but the returns that follow a bear market almost make the experience worth it, especially if you're a long way off from retirement.
The fastest-growing companies will usually deliver the sharpest rebounds once the markets bottom out. Memory chip maker Micron Technology (MU -0.18%) and cloud data provider Snowflake (SNOW -1.61%) are two of my favorite growth stocks to buy right now. Here's why these stocks could be great fits for a well-diversified portfolio.
Micron Technology
Micron is one of the largest suppliers of dynamic random-access memory (DRAM) modules and solid-state storage drives, which are widely used in consumer PCs, smartphones, and data centers. The stock has fallen 32% this year on concerns of a global slowdown across the semiconductor industry. Micron reported revenue growth of 16% year-over-year in the most recent quarter, but management expects revenue to decline approximately 13% year-over-year in the next quarter.
The slowing growth fits the historical pattern of the boom-and-bust cycles in the semiconductor industry. But even with the swings in demand, the stock has doubled since 2017, and could double again.
The explosion of data and the increasing connectivity between devices are the fundamental factors driving up Micron's revenue. Global data creation since 2010 has grown from 1 trillion gigabytes to 81 trillion gigabytes. This drives demand for memory and storage capacity, as seen in Micron's cumulative revenue growth of nearly 300% over the last decade.
New use cases for Micron's products, including electric vehicles, 5G infrastructure, artificial intelligence, and cloud computing, require more chips per unit, which should continue to drive revenue up.
These markets also have longer demand cycles than consumer products, which should help smooth out the boom-and-bust cycles over time. By fiscal 2025, Micron expects most of its revenue to come from the data center, automotive, industrial, and graphics markets.
It's impossible to know when the stock will turn around, but Micron should be a more valuable business in five years than it is today.
Snowflake
Despite trading at a high price-to-sales multiple of 32, this cloud stock offers tremendous long-term upside. Snowflake provides organizations a single platform to store and query data. It basically helps companies untether their data from legacy systems and move it over to the cloud, which allows more flexible access to data from different sources, including the ability to share data between organizations.
The cloud market has remained very resilient in 2022, despite weakening economic trends. Enterprise spending on cloud infrastructure services grew 34% year-over-year in the first quarter.
Strong demand for cloud services can also be seen in Snowflake's latest numbers. Revenue increased 84% year-over-year in the first quarter. Management expects revenue to grow another 71% to 73% year-over-year in the second quarter.
Most importantly, Snowflake is starting to see growth on the top line translate to improving profitability. Free cash flow was negative over a year ago, but it now totals $226 million on trailing-12-month basis.
SNOW Free Cash Flow data by YCharts
Growing free cash flow should fund Snowflake's innovation for clients. It recently announced several new improvements to the Snowflake Data Cloud, including a new cybersecurity workload and new features for the Snowflake Marketplace that allow companies to share and exchange data.
Snowflake has a sterling balance sheet, with $5 billion in cash and investments and no debt. Management expects revenue to grow at a compound annual rate of 30% over the next seven years, with free cash flow climbing to $2.5 billion, or 25% of total revenue.
The stock doesn't look cheap, but it's fallen 60% from its highs. The company's robust growth and improving free cash flow will likely push the stock much higher in the next bull market.
