2022 has gotten off to a rough start, especially for richly valued high-growth tech stocks. Even semiconductor stocks, which are coming off a banner year in 2021 thanks to the chip shortage, are hitting the skids on worries that amplified sales growth could (eventually, maybe in 2023) be due for a downturn.
But after cratering in recent weeks, some of these premium-priced stocks look like compelling buys right now -- assuming an investor plans to hold for years (and even better, has spare cash to make more purchases down the road). Here's why Nvidia (NASDAQ: NVDA), Advanced Micro Devices (NASDAQ: AMD), and Marvell Technology Group (NASDAQ: MRVL) are worth a look right now.
1. Nvidia: The bedrock of AI, autonomous vehicles, and entertainment
Nvidia stock is down about 35% from its all-time high, which it hit right before news of the omicron variant started dominating headlines in mid-November. That was followed by the market sell-off spurred on by the Fed's indication that it plans to raise interest rates this year. Even after the steep price drop, Nvidia stock is valued at an incredible 82 times trailing-12-month free cash flow, so it's no surprise shares have seriously cooled off.
The thing is, Nvidia trades for such an outrageous premium for a reason. It's providing all sorts of companies the hardware they need to build out data centers that support high-end cloud-computing services and AI. Nvidia's self-driving car system will also be available for production starting with 2024 model-year vehicles. Then there are video games, the company's roots, which are now everyday entertainment for hundreds of millions of people around the globe. Because of the chip shortage, most video gamers have yet to upgrade to the latest and greatest Nvidia graphics processing units (GPUs) in their gaming computers.
On top of all this semiconductor innovation from Nvidia is a library of software. The company has always been known for packaging great software together with its hardware systems to make them easy for developers to deploy. Nvidia has only just begun to dip its toe into the cloud-based software-sales world.
Its latest big announcement is the commercial availability of Omniverse -- software for content creation that helps remote designers work in a collaborative space in real-time. There are all sorts of capabilities within the toolbox that is Omniverse. Nvidia thinks one of those tools -- Avatars used to create lifelike digital assistants -- could be worth billions of dollars in annual sales someday.
In the meantime, Nvidia is already growing at an incredible rate from its data center and video game segments. Fiscal 2022 fourth-quarter (ending January 2022) revenue is expected to be up 48% year over year at the midpoint of guidance, and the average Wall Street analyst expects Nvidia to reach nearly $32 billion in sales this next year (about another 19% annual increase in revenue if those predictions prove true).
If you believe the cloud, AI, and high-end gaming will continue to expand in the next decade, Nvidia is a great place to get started building a portfolio to bet on these secular-growth trends, and the stock is currently discounted.
2. AMD: Still lots of market share up for grabs
AMD is almost 37% down from its high watermark, also reached in November before the market went haywire. With the stock trading at 47 times trailing-12-month free cash flow, the former underdog of the semiconductor industry still isn't "cheap." But considering how much market share it can still accumulate in the years ahead, there's still plenty to like about AMD, even at this price point.
AMD's central processing units (CPUs) for everything from PCs to laptops to data centers have been winning over lots of customers in recent years. Growth in the general computing and IT industries have helped, but many of these new sales have come at the expense of industry-leader Intel. For example, in Nvidia's latest DGX A100 system for AI computing in the data center, the company utilizes two AMD EPYC CPUs versus Intel CPUs in previous generations of the hardware.
Additionally, AMD is trying to open up a new front against Intel with its pending acquisition of field-programmable gate array (FPGA) leader Xilinx. That deal is still pending, though the two companies now say they expect it will be complete sometime in the first quarter of 2022.
If the merger goes through, AMD will get a lot bigger by adding Xilinx's business to its own (Xilinx had nearly $3.5 billion in sales over the last 12-month stretch, compared to AMD's own $14.9 billion in revenue). Even without integrating Xilinx, though, AMD said it expects full-year 2021 sales to be up 65% from 2020. The average analyst is forecasting another 20% growth on top of that in 2022.
Intel is prioritizing chip manufacturing right at the moment, so that could keep the door open for AMD to land more chip-design wins in the coming years since it has no manufacturing segment. It spun off its chip fab business a long time ago into what is now GlobalFoundries. Thus, after its recent tumble, AMD looks like a solid buy, given its potential in the coming years as it tries to woo over some of Intel's nearly $80 billion in annual sales.
3. Marvell Technology Group: A complete makeover by way of acquisition
Marvell Technology Group is a lesser-known name in the semiconductor space. However, with an enterprise value of over $60 billion and trailing-12-month revenue of nearly $4 billion, the company is beginning to show up on the radar of more investors. The high-growth chip designer is down more than 30% from its all-time highs reached just a couple of months ago.
Marvell is undergoing a massive change right at the moment. It has made multiple acquisitions in recent years, capped off with the purchase of network hardware companies Inphi and Innovium in 2021. Together with the company's existing portfolio of products, the purchases make Marvell a one-stop-shop for networking and data-management solutions -- from cloud-computing services to AI to the modern tech-enhanced vehicle.
The fast pace of acquisitions means Marvell is currently operating in the red (net losses of $411 million in the last 12 months), although the company is generating free cash flow (positive $469 million). As it works its way through the elevated expenses associated with purchasing Inphi and Innovium, Marvell is already beginning to reap the rewards of its revamped product line.
Management said it expects a 9% quarter-over-quarter rise in sales in Q4 fiscal 2022 (using sequential growth for now since the company didn't own Inphi or Innovium yet a year ago). And the average stock analyst thinks Marvell's revenue could swell to nearly $5.9 billion this next year.
Put another way, Marvell is better-positioned than ever before to take advantage of growth from data center construction, next-gen network buildout (like 5G mobile), and connected and autonomous vehicles. Marvell isn't the most well-known name in chip design like Nvidia and AMD, but that could change over the next few years. It's time to give this data and high-end computing semiconductor company a serious look after the recent sell-off.
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Nicholas Rossolillo and his clients own Advanced Micro Devices, Marvell Technology Group, Nvidia, and Xilinx. The Motley Fool owns and recommends Advanced Micro Devices, Intel, and Nvidia. The Motley Fool recommends Marvell Technology Group and Xilinx and recommends the following options: long January 2023 $57.50 calls on Intel and short January 2023 $57.50 puts on Intel. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.