2 Growth Stocks Down 35% and 78% You'll Wish You'd Bought on the Dip

2022 was brutal for the stock market, and particularly for the technology sector. The Nasdaq-100 tech index plunged 33% for the year, but at this stage, it looks like it might have bottomed in October. The index has steadily climbed ever since, logging a 24% gain so far from that low point.

With that said, some technology stocks are still sitting well below their all-time highs as their fundamentals continue to grapple with a tough economic environment. Shares of semiconductor giant Micron Technology (MU -0.60%) are down 35%, and shares of real estate technology company Zillow Group (Z -0.46%) (ZG -0.69%) have fallen 78%. 

But the economy will almost certainly improve, and when investors look back in a few years from now, they might wish they'd bought both of these stocks on the dip. 

1. Micron Technology: A new growth phase might have arrived

Micron is a globally leading producer of memory (DRAM) and storage (NAND) semiconductors, which can be found in every electronic device from computers to smartphones to cars. Right now, the company is tackling tough conditions driven by the economy and the cyclical nature of the semiconductor industry.

Micron delivered an all-time high $30.7 billion in revenue in fiscal 2022 (ended Sept. 1, 2022), but that's on track to be cut in half to just $15.5 billion in fiscal 2023. During 2020 and 2021, the pandemic disrupted supply chains, which drove a shortage of important chips, so producers like Micron had pricing power and worked overtime to meet demand. 

But midway through calendar year 2022, the industry's efforts led to an oversupply of chips while soaring inflation and rising interest rates triggered a slowdown in the economy. Therefore, all the tailwinds boosting Micron's business reversed, crushing its financial expectations and sending shares down 35% from its all-time high. 

Nonetheless, the tide might be returning to the company's favor. In the fiscal 2023 second quarter (ended March 2), Micron noted that inventories may have peaked, and its revenue is close to returning to growth. In fact, the company thinks its quarterly data center revenue has bottomed, and in Q2, it continued to see growth in its emerging automotive segment. That could be a strong source of revenue in the future as new technologies like electric vehicles are more widely adopted.

In welcome news for the entire industry, Micron's key competitor Samsung just announced it would significantly reduce production of memory chips because of the supply glut. The move should help inventories shrink faster. 

Internally, Micron will run a leaner business going forward by restructuring its costs to align with its declining revenue. It will reduce capital expenditures by 40% in fiscal 2023, cut its workforce by 15%, and it has also slashed executive salaries and eliminated employee bonuses. Investors responded positively to the news, and it could point to a bottom in Micron stock as the company transitions back to growth. That's why now could be a great time to buy.

2. Zillow Group: Interest rates might be nearing a peak

Interest rates have been front of mind for households over the last 18 months, and for good reason. In order to cool inflation -- which hit a 40-year high in June last year -- the U.S. Federal Reserve embarked on the most aggressive campaign to hike interest rates in its history.

Naturally, this hurt demand for housing because consumers now have less borrowing capacity and can't afford to pay the same prices they were a couple of years ago. It has driven a slowdown in sales, and that directly impacts real estate technology company Zillow Group -- just as it's attempting to transform its business into a digital one-stop shop for buyers and sellers. 

See, toward the end of 2021, Zillow suffered substantial losses in its iBuying (direct buying) business, and it was forced to wind it down. It was overly aggressive when acquiring homes it thought would rise in value, but in the end, the company accumulated hundreds of millions of dollars in losses instead.

Zillow is now focused on building its housing "super app" to deliver all the services home buyers and sellers need to complete a transaction, from brokering to mortgages to closing services. The company is already the go-to destination for many consumers, with 220 million people visiting its digital platforms each month, so it's embarking on this transition from a position of strength. 

Zillow says the average home sale generates $17,500 in fees, and it was only capturing $4,100 of that amount at the start of last year -- leaving plenty of room for growth. 

Wall Street analysts think Zillow will generate $1.8 billion in revenue in 2023, which is down significantly from its 2021 peak of $8.1 billion due to the absence of iBuying. But the company has charted a path to $5 billion in annual revenue by 2025, and since services underpinned by technology tend to scale really well, that growth could come with strong profitability, too. 

To cap things off, many analysts and economists are preparing for the Federal Reserve to stop raising interest rates this year, and some think rates might even come down. If that reignites demand for housing, Zillow could be one of the biggest winners.