It’s been a long-fought battle in the market in 2022, with a hawkish Federal Reserve, geopolitical issues, and lingering COVID-19 uncertainties spoiling the fun at every turn.
On a much more positive note, it’s created a massive buying opportunity.
Many investor-favorite stocks have seen their valuation multiples slashed, particularly those in the Zacks Computer and Technology sector.
Of course, nobody has a crystal ball telling them where the market will move next, and it’s impossible to time the market just right.
However, it’s a gold mine out there for those with a long-term horizon, with an extensive list of companies trading at a discount to their historic levels.
Three beaten-down tech stocks that have seen their valuation multiples fall notably – Nvidia (NVDA Quick QuoteNVDA ) , Adobe (ADBE Quick QuoteADBE ) , and Alphabet (GOOGL Quick QuoteGOOGL ) – could all be of significant interest to those with a bit of patience.
Below is a chart illustrating the share performance of all three stocks YTD with the S&P 500 blended in as a benchmark.
Image Source: Zacks Investment Research
Let’s dive deeper into how the companies currently shape up for those interested in buying tech at a discount.
Adobe
Adobe shares have become notably cheaper amid the stretch of poor price action; the company’s forward earnings multiple of 26.4X is well beneath its five-year median of a steep 45.3X and a fraction of 2021 highs of 65.5X.
Image Source: Zacks Investment Research
Further, ADBE is still forecasted to grow at a solid pace; earnings are forecasted to climb 9% in FY22 and a further double-digit 14% in FY23.
The forecasted bottom-line growth comes on top of projected revenue increases of 11.5% and 12.4% in FY22 and FY23, respectively.
Image Source: Zacks Investment Research
The company posted a solid Q3 2022, exceeding the Zacks Consensus EPS Estimate by 2.1%. Top-line results were strong, too, reported at $4.4 billion and reflecting a strong 13% Y/Y uptick.
Dan Durn, EVP and CFO, said, “Adobe achieved record revenue and strong profitability in the quarter, demonstrating that our products are mission-critical to individuals, small businesses and the world’s largest enterprises.”
Below is a chart illustrating the company’s revenue on a quarterly basis.
Image Source: Zacks Investment Research
Nvidia
Nvidia shares currently trade at a 47.5X forward earnings multiple, certainly not cheap by any stretch. However, the current value is nowhere near the steep 2021 highs of 93.5X during the semiconductor melt-up.
Image Source: Zacks Investment Research
While the company’s Gaming revenue has taken a hit amid a slowdown in demand, NVDA’s Data Center results are definitely worth highlighting – Data Center revenue climbed 61% Y/Y to $3.8 billion in its latest quarter, with sales from hyperscale customers nearly doubling.
Nvidia’s Automotive results are undoubtedly worth a spotlight as well; Automotive revenue climbed a double-digit 45% Y/Y and 59% sequentially, with the strong growth driven by Auto AI Solutions (this includes AI Cockpit and Self-Driving revenue).
While the company’s Gaming revenue has experienced quite a slowdown, other areas of its business are still enjoying strong growth.
NVDA’s earnings are forecasted to decline by more than 20% in its current fiscal year (FY23), but things kick back into the green for FY24, with estimates calling for 30% growth.
Further, revenue is forecasted to climb a marginal 1.8% in FY23 and a sizable 14% in FY24.
Image Source: Zacks Investment Research
Alphabet
Alphabet shares could be the most enticing of all three – the company’s shares trade at a 19.2X forward earnings multiple, reflecting a 7% discount relative to its Zacks Computer and Technology sector.
Further, the current value reflects a sizable 32% discount relative to the five-year median of 26.7X.
Image Source: Zacks Investment Research
GOOGL knows how to generate cash – Alphabet came in hot in its latest print, reporting quarterly free cash flow of $12.6 billion, the fourth highest of any S&P 500 company in Q2.
Image Source: Zacks Investment Research
The company’s Google Cloud platform has been a notable success; in its latest quarter, Google Cloud revenue came in at $6.3 billion, reflecting a stellar 35.6% Y/Y uptick and a 9% sequential increase.
Keeping a Long-Term Mindset
It’s been anything but fun for tech stocks in 2022, with a vast number witnessing double-digit percentage share price declines.
However, amid all the negativity, long-term investors have been presented with a buying opportunity not seen in some time.
Of course, there is always risk to the downside, but that’s why investors need to keep a long-term mindset, especially during uncertain times.
Many strong companies, such as Nvidia (NVDA Quick QuoteNVDA ) , Adobe (ADBE Quick QuoteADBE ) , and Alphabet (GOOGL Quick QuoteGOOGL ) , have seen their valuation multiples pull back notably.
Implementing a dollar-cost average strategy would be great for those looking to build up their positions and reap the rewards on the way back up.
