Over the past year, macroeconomic conditions have helped push the broader market indexes, including Nasdaq Composite, deep into bear market territory. The tech-centric index has been hit the hardest, down roughly 35% since late last year, marking its steepest decline in more than 10 years.
Many of the individual stocks that make up the index have suffered even worse declines. Alphabet (GOOGL 0.35%) (GOOG 0.37%) and Nvidia (NVDA 0.76%) have been brutalized, falling 41% and 58%, respectively, during the same timeframe. Neither of these stocks has experienced a decline of this magnitude in more than 10 years.
That said, investors that can view the opportunity separate from the stock price stand to profit from these once-in-a-decade buying opportunities.
Image source: Getty Images.
Alphabet: The undisputed leader in search and digital advertising
Alphabet's stock had already experienced a rare drop-off over the past year, and its recent results did little to assuage investor fears. Revenue of $69 billion climbed just 6% year over year, marking its slowest rate of growth in nearly a decade.
Yet those number don't tell the whole story. In 2021, Alphabet's revenue spiked 41%, its fastest growth rate in 15 years -- setting an abnormally high bar for comps. Furthermore, as fears of a full-blown recession have grown, businesses have scaled back spending on digital advertising, which has temporarily weighed on its Google and YouTube ad businesses.
Those temporary challenges aside, Alphabet dominates worldwide search, with a 92% share of the market. Challengers have emerged over the years, but none has been able to replicate the accuracy of Google's search algorithms. This has helped to fuel the company's supremacy in online advertising, controlling roughly 29% of worldwide digital ad spending in 2021. Furthermore, YouTube is the No. 1 video streaming platform across the globe, with roughly 2.6 billion viewers using the platform each month.
These factors provide Alphabet with a nearly insurmountable moat, helping cement its position as the market leader for more than a decade.
Alphabet has also established itself as one of the Big Three cloud providers with 9% of the market, behind just Amazon Web Services (AWS) and Microsoft Azure, with 32% and 22% of the market, respectively, according to Canalys. However, Alphabet is the fastest growing of the three, as it continues to take market share from the leaders.
Given its strong position in both industries, investors can get Alphabet for a steal. The stock is trading for just 17 times earnings, its cheapest price-to-earnings ratio since late 2013.
Nvidia: Taking graphics and data centers to new heights
Nvidia ended last year on a high note. The company closed out fiscal 2022 (ended Jan. 30) with record quarterly and annual revenue, fueled by record performances from its gaming, data center, and professional visualization segments. This also resulted in record earnings per share for both the fourth quarter and the year.
Then the bottom seemed to drop out. For the 2023 fiscal second quarter (ended Jul. 31), revenue of $6.7 billion grew just 3% year over year, dragged lower by a 33% decline in the company's gaming segment. There's little question that the macroeconomic conditions are driving the deteriorating demand for Nvidia's high-end graphics processing units (GPU), so when the economy turns around, sales will no doubt pick back up.
In fact, Nvidia continues to dominate the discrete desktop GPU market with an 80% share, even as personal computer shipments dried up. This provides further evidence that this situation is temporary.
Furthermore, Nvidia continued to leverage its data center segment, which generated second-quarter revenue of $3.81 billion, up 61% year over year. The ongoing migration to cloud computing, the need for accelerated computing, and the sheer volume of data created every day will only increase the need for Nvidia's products.
The world produced 79 zettabytes of data in 2021 (a zettabytes is equal to a trillion gigabytes), but that number is expected to soar to 181 zettabytes by 2025, more than doubling the need for new data centers -- and creating an ongoing demand for Nvidia's semiconductors.
Given the company's significant opportunities in gaming, accelerated computing, and data centers, investors shouldn't sleep on the fact that all this growth comes at a reasonable price of 11 times next year's sales. While a reasonable price-to-sales ratio is generally between 1 and 2, Nvidia's historical performance and sizable market opportunity suggest it's deserving of a premium.
