Ever since the stock market hit bottom during the Great Recession of 2009, tech growth stocks have been the driving force on Wall Street. Historically low lending rates coupled with the US Federal Reserve’s quantitative easing program created an ample pool of cheap capital that growth-oriented companies used to fuel expansion.
But that came to an abrupt end almost exactly a year ago, and today technology is a lagging sector, down 30% so far this year. While much of the wreckage stems from the collapse of speculative games, many otherwise solid tech companies whose growth trajectory remains unabated have also been demolished.
No one knows if we’ve bottomed out or if there’s still plenty of room for stocks to fail, but savvy investors know that significant losses in the broader market create prime conditions for patient investors to make their fortunes. Bullish rallies always follow market declines and are an excellent time to jump as long as you don’t need the money to pay bills or for an emergency.
With plenty of tech bargains to be found, the following two growth stocks have the tools you need to make you richer in October and beyond.
modern micro devices
modern micro devices (AMD -13.87%) is one of the largest semiconductor manufacturers in the world and has avoided much of the chip shortage that plagues the rest of the industry. Last year, sales soared a whopping 68% to $16.4 billion, allowing it to take more stakes from its arch-rival intel (NASDAQ:INTC).
That’s because AMD doesn’t make its own chips like Intel, but buys them from companies like e.g Taiwan semiconductor manufacturing and GlobalFoundries to make them for it. And because it’s such a big buyer of chips, it’s been able to secure its supply chain. It also has a narrow focus on smaller, more advanced chips that happen to be higher margin.
Mid-2022 sales were up 70% from last year, but despite an admittedly ugly pre-announcement of third-quarter results after yesterday’s close, AMD still looks solid going forward.
While the market sent its stocks plummeting after the news, it really shouldn’t have been such a big surprise. We knew consumer spending could be weak, and the report showed it: PC sales were lower than expected and consumer segment revenue was weak. But AMD’s enterprise-class customers continue to buy, and the data center chips and embedded products used by the telecom industry continue to show significant strength.
AMD’s share price fell ahead of the advance notice, and the renewed drop brings the stock to even more compelling levels. The stock is down 58% year-to-date as of this writing, and Wall Street is likely to hit its 12-month consensus price target, which was $127 per share, with a street high target of $200 per share Reconfigure stock, a big jump from where it is trading near $60.
With a strong revenue backlog behind its key business segments, leadership in both CPUs and the graphics market, and thus gaining market share in data centers and servers, where a virtual duopoly exists, Advanced Micro Devices remains a good long-term choice for your portfolio. There’s a lot of weakness now, but patient investors might find the current price a bargain.
Under consideration of Nasdaq 100 Tech Sector Index down 36% year-to-date, Duolingo‘s (DUOL -5.55%) 8% drop is not that bad. Wall Street’s outlook is a bit more muted than AMD’s, however, with “only” forecast for next year’s 35% growth at the high end. However, Duolingo could eclipse those estimates.
Duolingo, of course, is the education tech stock that exploded in popularity during the pandemic lockdown period, when bored people stuck at home began learning a second language on their cell phones. The app is free to download and all of its content is free to use as long as you don’t mind watching an ad on the go. The freemium model allows for an ad-free experience with in-game enhancements for just a few dollars a month.
Game? Oh well. Duolingo has gamified the language learning process, offering rewards and encouragement as you unlock language skills. Duolingo is so popular that it became the top education app during lockdown and remains so today, according to SimilarWeb, ahead of more established competitors such as chegg and Rosetta Stone.
Duolingo has 49.5 million monthly active users, up 31% year over year, with paid subscribers reaching 3.3 million. Revenue rose 50% to $88.4 million in the second quarter, and management expects full-year revenue to hit $364 million at the halfway point of its guidance, up 45% year over year.
While the market may be concerned about ad demand in a recession, subscriptions account for nearly 75% of revenue, while ads make up less than 13%. Duolingo is also committed to expanding into new industries and its tests are recognized as a credential at over 3,000 international student admissions institutions. It generated around $8 million in English testing revenue last quarter.
Due to its freemium business model, Duolingo has the potential to expand its paid subscriber base and advertising business, allowing it to grow into the expectations of Wall Street and beyond.
Rich Duprey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Chegg 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.