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recently, Technology sector The pandemic has been a challenge for investors as benefits fade and interest rates rise, increasing the cost of capital and reducing the value of future growth.
With 2022 failures, Amazon (AMZN -0.97%) And Nivea (NVDA -2.79%) They did not escape the massacre. That said, both companies have what it takes to regain their long-term growth trajectory.
1. Amazon should recover in the long run
Up 18% year-to-date, Amazon stock is starting to recoup some of its heavy losses in 2022. However, there is still work to be done. While some investors may be underwhelmed after weaker-than-expected fourth-quarter earnings, Amazon’s challenges appear temporary. And the tech giant’s long-term growth theory remains strong.
While Amazon’s fourth-quarter revenue rose 9 percent year-on-year to $149.2 billion, net income fell 97 percent to $300 million as higher inflation and reduced prices for Amazon’s Web services customers. That said, these results don’t necessarily reflect Amazon’s long-term profitability. As a cyclical business, it is very sensitive to temporary economic changes and can bounce back when conditions improve. The company still maintains its position as an industry leader Network effects (The benefits of a platform when more people use it).
Amazon’s size gives it a competitive advantage in digital advertising, allowing customers to better target customers with a large, purchase-based user base. Its advertising business grew 19 percent to $11.6 billion and will provide another source of diversity and continued growth.
At a forward price-to-earnings (P/E) ratio of 57, Amazon stock isn’t cheap compared to recent earnings forecasts. But investors should remember that the company is entering a downward cycle and has all the advantages needed for a long-term recovery.
2. Nvidia’s AI focus provides a new trigger
Up 59% year to date, Nvidia is recovering from its recent decline — though shares are still down 31% from the $333.41 high reached at the end of 2021. The most widely used GPU chips. Pillars of new technologies like artificial intelligence (AI) can help power the next leg of expansion.
Image source: Getty Images
According to NVIDIA CEO Jensen Huang during a fireside strategy discussion with the Haas School of Business at the University of California, Berkeley. AI chatbot ChatGPT It’s “one of the greatest things ever done to a computer.” He says he believes it can revolutionize the tech industry by allowing people to automate difficult programming tasks and unlock productivity. From an investor perspective, this is a huge deal for Nvidia as its industry-leading GPU chips are critical to powering this emerging technology.
Omdia analysts believe that NVIDIA has an 80% market share in the AI processor market. And the ChatGPT platform used 10,000 Nvidia GPUs to train the model, so if this technology is as revolutionary as many expect, it will be a driver of long-term revenue growth and diversification.
In the third quarter of fiscal 2023, ended Oct. 30, Nvidia’s revenue fell 17 percent to $5.93 billion on weakness in the gaming and professional viewing segments. But this was partially offset by data center strength, which jumped 31% to $3.83 billion. At a forward price-to-earnings (P/E) multiple of 49, shares are valued significantly higher than the competition. S&P 500‘s average of 22. But the premium seems fair, considering that Nvidia is at the bleeding age of a potential AI revolution.
The power of strong waves
Economic engines are very important when it comes to the staying power of a company. While industry-leading companies like Amazon and Nvidia may go through some near-term challenges, their competitive advantages could help them bounce back in the long run, making both stocks look like good buys.
John McKee, former CEO of Whole Foods Market, a subsidiary of Amazon, is a member of the Motley Fool’s board of directors. Will Ebiefung has no position in the said shares. He has positions in the Motley Fool and recommends Amazon.com and Nvidia. The Motley Fool has a disclosure policy.
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