Some investors may have soured on tech growth stocks following the worst market declines since the 2008-2009 financial crisis. Cathie Wood's Ark Innovation ETF, which focuses on such stocks, has plunged by nearly 75% from its early 2021 peak, and some individual companies have fallen further.
Nonetheless, many of these stocks hold tremendous long-term potential that has increased amid these massively discounted share prices. Advanced Micro Devices (AMD 0.69%), Meta Platforms (META 1.54%), and Twilio (TWLO -0.55%) are likely three such stocks.
AMD shares have fallen 54% from their all-time high -- maybe long-term investors should pounce
Jake Lerch (Advanced Micro Devices): There's plenty of carnage in the stock market among tech stocks, and AMD is no exception. The company's shares are down 54% from last year's all-time high of around $162.
However, major sell-offs can present buying opportunities, and at its current level, AMD looks attractive. The company's current price-to-earnings (P/E) ratio of 31.3 is within a whisper of its three-year low (29).
AMD PE Ratio data by YCharts
What's more, AMD's fundamentals are still strong. The company is riding the momentum created by the cloud computing megatrend. AMD's EPYC chips remain in high demand to help power the cloud, and the business is reaping massive revenue growth because of it.
But the cloud is only one part of the AMD story. The company has now fully completed its acquisition of Xilinx, a maker of mostly custom-designed semiconductors. By incorporating Xilinx into AMD's embedded business segment, AMD has further diversified its revenue away from personal computers and gaming and into the automotive, aerospace, and defense sectors.
The semiconductor industry is famously cyclical, and so investors should remain prudent as the Federal Reserve continues to hike interest rates and economic growth appears uncertain. But for long-term investors, AMD looks like a smart buy. Its cheap valuation, solid balance sheet, and excellent management give me confidence that its current dip is worth buying.
The communications stock that could link investors to stock gains despite its 84% plunge
Will Healy (Twilio): Twilio has become one of the early and more notable victims of the current bear market. It peaked at around $457 per share in February 2021, but its decline did not accelerate until later that year. At the current price of approximately $73 per share, it has experienced a drop of about 84%!
Twilio is a communications platform-as-a-service (CPaaS) business, supporting the voice, text, video, and email needs that make many tech-oriented enterprises possible. Twilio stock surged higher as consumers saw a greater need for such apps during the pandemic-related lockdowns.
But it has seen a slowdown in growth as more offline activity resumed. In 2021, revenue increased by 61% for the year. By Q2, that growth had slowed to 41%, and the company forecast a robust but less impressive revenue jump of between 30% and 32% for Q3. Amid this news and the lower stock price, Twilio recently laid off 11% of its workforce.
Still, investors had likely priced too much growth into the stock in early 2021. Its price-to-sales (P/S) ratio had reached a high of 36 at that time. Today, its P/S ratio stands at around 4, a level just above its all-time lows.
Furthermore, even amid the bad news, the improvements have continued. Twilio's service is indispensable in supporting tech companies like Lyft and Airbnb. This gives Twilio a competitive advantage over peers because such businesses may struggle to afford the outages a switch would involve. Also, products such as Twilio Flex, a contact center support product, and the Twilio Segment data cloud can save its clients money on development costs.
Future Markets Insights forecasts a 25% compound annual growth rate (CAGR) for CPaaS through 2032, estimating it will expand into a $59 billion industry. This means that its rapid revenue growth should continue for years. That rate of increase should help make Twilio stock a buy as it works to reverse its massive share-price decline.
This stock's 63% decline could be a golden opportunity
Justin Pope (Meta Platforms): Social media has become a core part of how people worldwide communicate and connect. Nobody is more dominant in that space than Meta Platforms. The company owns Facebook, Instagram, and WhatsApp, three of the world's four most-downloaded social media apps last year. Meta's family of apps has a whopping 3.65 billion monthly active users.
Meta makes the vast majority of its money through advertising; its enormous user base is a big audience that generates billions of cash profits for the company. You can see below how booming the business is: It gets $0.33 in free cash flow from every revenue dollar.
META Revenue (TTM) data by YCharts
But Meta's encountered adversity recently. Privacy changes made to iPhone software have hurt the company's ability to track its users, making its advertising less profitable. At the same time, economic worries are shaking the corporate world, and many advertisers are tightening up their wallets. These two factors are slowing growth, leading investors to sell the stock, which has fallen 63% from its high. The shares are the cheapest in recent memory, trading at a P/E under 12.
However, the stock's drop could eventually prove to be a great buying opportunity in hindsight. Meta is investing billions in building out a metaverse business that could open up a new realm of advertising possibilities over the long term. Meanwhile, there are still potentially new ways that Meta can leverage its social media platforms; for example, it recently integrated WhatsApp into Salesforce so merchants can chat with customers. Short-term uncertainty can be intimidating, but CEO Mark Zuckerberg has proved to be an excellent operator. The stock's bargain-level valuation could set investors up for significant returns down the road if he can execute on his big ideas once again.
