Tech stocks finally seem to be waking up after a long slumber during 2022. The Nasdaq Composite (^IXIC 0.07%) is up 13% year to date through Feb. 17 as investors have responded well to signs of cooling inflation and the Federal Reserve's decision to slow interest rate hikes.
Valuations in the tech sector have also come down significantly since the peak in late 2021, offering a number of attractive buying opportunities. On that note, here are two tech stocks that look ready to rally now.
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1. MercadoLibre
MercadoLibre (MELI -1.07%) is best known as the leading Latin American e-commerce company, but it's much more than that. It's also a digital payments powerhouse through Mercado Pago, and it has operations in logistics, credit, and asset management.
The company saw significant profit growth in the third quarter thanks to the emergence of its ad business. Much like Amazon, MercadoLibre is tapping into the potential of running ads on its e-commerce marketplace as the company benefits from its position at the bottom of the funnel, with consumers coming to its website intending to make purchases.
In the third quarter, it reported a record operating margin of 11%, helped by the growth of its advertising and credit businesses.
Unlike many of its e-commerce counterparts in the U.S., MercadoLibre has also bucked the headwinds in online retail and continued to post strong growth through 2022.
In the third quarter, currency-neutral gross merchandise volume, or the total value of goods sold on its platform, rose 32% to $8.6 billion, and total payment volume jumped 76% to $32.2 million. As a result, revenue jumped 61% to $2.7 billion, a far cry from the single-digit top-line growth that Amazon and other U.S.-based peers have been reporting.
With that kind of growth and the collapse of its close rival in Brazil, Americanas, in an accounting scandal, MercadoLibre has competitive advantages that look as strong as ever. If the company can deliver another strong round of results in its fourth-quarter earnings report on Feb. 23, the stock could take off.
2. Advanced Micro Devices
Times are tough in the chip sector as an inventory glut has led to falling prices, squeezing profits across the board. Even in such a challenging market, Advanced Micro Devices (AMD -0.25%) was able to delight investors with its fourth-quarter report, and the stock jumped 12% on Feb. 1.
AMD wasn't immune to the malaise in the industry. While revenue rose 16% to $5.6 billion helped by its acquisition of Xilinx in early 2022, gross margin fell 740 basis points to 43% and adjusted operating income was just flat at $1.3 billion.
Weakness in PC sales led to a 51% revenue decline in the PC-based client segment, and the company said that pressure in PCs and gaming would lead to a 10% decline in revenue in the first quarter.
But in spite of the sector-level pressure, AMD continues its smart moves to grow over the long term. Its acquisition of Xilinx to break into the embedded-chip market in industries like automaking, aerospace, and wireless communications -- and beef up its data center capabilities -- seems to be paying off and has complemented its core chip business.
And AMD has consistently outmaneuvered Intel. Its decision to outsource manufacturing of its chips has given it an advantage over its chief rival. Intel is now playing defense again, laying off workers and cutting salaries after losing nearly $10 billion in free cash flow last year, even though it's still paying investors roughly $6 billion in dividends annually.
AMD does not pay a dividend, allowing it to plow its profits back into the growth of the business, an advantage in a highly competitive sector like semiconductors.
While the first half of the year is expected to be challenging for AMD, investors could be rewarded if it continues to deliver market share gains. And the long-term outlook with the current boom in artificial-intelligence demand also adds to the stock's upside potential
