Since the bottom of the stock market during the Great Recession in 2009, tech growth stocks have been the driving force on Wall Street. Historically low lending rates combined with the Federal Reserve’s quantitative easing program have created an abundant pool of cheap capital that growth-oriented companies have used to fuel their expansion.
Yet that came to an abrupt end almost exactly a year ago, and today tech is a lagging sector, down 30% so far this year. While much of the wreckage is due to the collapse of speculative gaming, many otherwise strong tech companies whose growth track remains intact have also been taken down.
No one knows if we’ve bottomed or if there’s still a lot of air under stocks, but savvy investors know that deep losses in the broader market create ideal conditions for patient investors to strike it rich. . Market dips are always followed by bull market bounces and are a great time to jump, as long as you don’t need the cash to pay bills or for an emergency.
With plenty of tech bargains to be found, the following pair of growth stocks has the tools to get you rich in October and beyond.
Advanced micro-systems (NASDAQ: AMD) is one of the largest semiconductor producers in the world, and it has been able to avoid much of the chip shortage plaguing the rest of the industry. Last year, revenue rose 68% to $16.4 billion, allowing it to further cut its rival’s share Intel (NASDAQ: INTC).
This is because AMD does not manufacture its own chips like Intel does, but instead depends on companies such as Semiconductor manufacturing in Taiwan and GlobalFoundries to make them for it. And since it’s such a big buyer of chips, it was able to secure its supply chain. It also focuses on the smaller and more advanced chips, which happen to be the higher margin ones.
Midway through 2022, sales were 70% higher than last year, but despite an admittedly ugly third-quarter earnings pre-announcement after the market closed yesterday, AMD still looks well positioned for the future.
Although the market sent its shares tumbling after the news, it really shouldn’t have come as such a surprise. We knew consumer spending might be weak and that’s what the report showed: PC sales were below expectations and customer segment revenue was weak. But AMD’s enterprise customers continue to buy, and the data center chips and embedded products that are used by the telecommunications industry continue to show significant strength.
AMD stock price was down prior to the pre-announcement, and the further drop takes the stock to an even more compelling level. The stock is down 58% year-to-date as I write this, and Wall Street is likely to reconfigure its 12-month consensus price target of $127 per share with a target high of $200 per share, a huge jump from where it is trading near $60.
With strong wind of sales support behind its most important business segments, leadership in both CPUs and the graphics market, and with growing market share in data centers and servers where there is effectively a duopoly, Advanced Micro Devices remains a good long-term choice for your wallet. There’s a lot of weakness now, but patient investors might find its current price a bargain.
Considering the Nasdaq 100 Technology Sector the index is down 36% since the start of the year, Duolingoit is (NASDAQ: DUOL) An 8% drop isn’t so bad. Wall Street’s outlook, however, is a little more subdued than for AMD, with “only” a 35% gain expected over the next year at the high end. However, Duolingo could perhaps put those estimates to shame.
Duolingo, of course, is the educational tech stock that exploded in popularity during the pandemic lockdown as bored people stuck at home started learning a second language on their cellphones. The app is free to download and all of its content is available for free, as long as you don’t mind watching an ad along the way. Its freemium model allows for an ad-free experience with in-game improvements for just a few dollars a month.
Game? Well yes. Duolingo has gamified the language learning process and offers rewards and encouragement as you unlock language proficiency achievements. Duolingo is so popular that it became the best educational app during lockdown and remains today, according to SimilarWeb, putting it ahead of more established rivals such as Chegg and Pierre de Rosetta.
Duolingo has 49.5 million monthly active users, up 31% from last year, with paid subscribers reaching 3.3 million. Second-quarter revenue jumped 50% to $88.4 million, and management expects full-year revenue to reach $364 million halfway through its guidance, up 45% from one year to the next.
While the market may be concerned about ad demand during a recession, subscriptions account for nearly 75% of revenue, while ads account for less than 13%. Duolingo is also looking to expand into new verticals, and its tests are recognized as proof of proficiency at more than 3,000 institutions for admitting international students. It generated some $8 million in revenue from English testing last quarter.
Due to its freemium business model, Duolingo has the potential to expand its paid subscriber base and advertising business, enabling it to meet Wall Street expectations and beyond.
10 stocks we like better than Advanced Micro Devices
When our award-winning team of analysts have stock advice, it can pay to listen. After all, the newsletter they’ve been putting out for over a decade, Motley Fool Equity Advisortripled the market.*
They just revealed what they think are the ten best stocks investors can buy right now…and Advanced Micro Devices wasn’t one of them! That’s right – they think these 10 stocks are even better buys.
View all 10 stocks
* Portfolio Advisor Returns as of September 30, 2022
Rich Duprey has no position in the stocks mentioned. The Motley Fool holds positions and recommends Advanced Micro Devices, Intel and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Chegg and recommends the following options: long calls $57.50 January 2023 on Intel and short $57.50 January 2023 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.