2 Unique Buying Opportunities in a Decade in a Nasdaq Bear Market

Over the past year, macroeconomic conditions have helped weigh on broader market indices, including Nasdaq Compositedeep inside bear market Area. The tech-focused index has been hit the hardest, down around 35% since late last year, marking its sharpest decline in more than 10 years.

Many of the individual stocks that make up the index have suffered even worse declines. alphabet (GOOGL -0.95%) (WELL -0.71%) and NVIDIA (NVDA -1.71%) were brutalized and fell by 41% and 58% respectively over the same period. None of these stocks have seen a decline of this magnitude in more than 10 years.

However, investors who see the opportunity independent of the stock price can take advantage of these once-in-a-lifetime buying opportunities.

A person staring at graphs and charts on a computer monitor.

Image source: Getty Images.

Alphabet: The undisputed leader in search and digital advertising

Alphabet’s stock had already seen a rare drop over the past year, and recent results did little to allay investor fears. Revenue of $69 billion rose just 6% year over year, marking the slowest growth rate in nearly a decade.

But these numbers don’t tell the whole story. In 2021, Alphabet’s revenue rose 41%, its fastest growth rate in 15 years — setting an unusually high bar for comps. In addition, as fears of a full-blown recession have grown, companies have scaled back their digital advertising spend, which has temporarily weighed on Google’s and YouTube’s advertising businesses.

Aside from these temporary challenges, Alphabet dominates global search with a 92% market share. Challengers have emerged over the years, but none have been able to replicate the accuracy of Google’s search algorithms. This has helped bolster the company’s supremacy in online advertising, which controls around 29% of global digital advertising spend in 2021. Additionally, YouTube is the #1 video streaming platform globally, with around 2.6 billion viewers using the platform every month.

These factors create a nearly insurmountable moat for Alphabet and help solidify its position as a market leader for more than a decade.

Alphabet has also established itself as one of the Big Three cloud providers with a 9% market share, behind only Amazon Web Services (AWS) and Microsoft Azure with 32% and 22% of the market respectively, according to Canalys. However, Alphabet is the fastest-growing of the three companies as it continues to take market share from the market leaders.

Given its strong position in both industries, investors can get Alphabet for a bargain price. The stock trades at just 17 times earnings, the cheapest price-earnings ratio since the end of 2013.

Nvidia: taking graphics and data centers to new heights

Nvidia ended the past year on a high. The company closed fiscal 2022 (ended January 30) with record quarterly and annual sales, driven by record performances in its gaming, data center and professional visualization segments. This resulted in record earnings per share for both the fourth quarter and the full year.

Then the bottom seemed to fall out. In the second quarter of fiscal 2023 (ended July 31), revenue of $6.7 billion grew just 3% year over year, dragged down by a 33% decline in the company’s gaming segment. There is no question that macroeconomic conditions are driving deteriorating demand for Nvidia’s high-end graphics processing units (GPUs), so sales will no doubt pick up again when the economy turns around.

In fact, Nvidia continues to dominate the discrete desktop GPU market with an 80% share, even as PC shipments dried up. This is further evidence that this situation is temporary.

Additionally, Nvidia continued to leverage its data center segment, which generated revenue of $3.81 billion in the second quarter, up 61% year over year. The ongoing migration to cloud computingthe need for accelerated computing and the sheer volume of data generated daily will only increase the need for Nvidia products.

The world produced 79 zettabytes of data in 2021 (a zettabyte equals one trillion gigabytes), but that number is expected to grow to 181 zettabytes by 2025, more than doubling the need for new data centers — and sustained demand for data is creating Nvidia’s semiconductor.

Given the company’s significant gaming, accelerated computing, and data center capabilities, investors shouldn’t sleep on the fact that all of this growth comes at a reasonable price of 11 times next year’s revenue. While a reasonable price-to-sales ratio is generally between 1 and 2, Nvidia’s historical performance and significant market opportunity suggest Nvidia deserves a premium.

Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Danny Vein has positions in Alphabet (A shares), Microsoft and Nvidia. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Microsoft, and Nvidia. The Motley Fool has one confidentiality policy.

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