Technology stocks have plunged big time in 2022, with the Nasdaq-100 Technology Sector index down nearly 35% so far this year thanks to a hawkish Federal Reserve that’s hiking interest rates in a bid to keep surging inflation in check.
The sharp decline in tech stocks has brought some high-flying names crashing into the ground this year. The likes of Advanced Micro Devices (AMD -6.36%) and Micron Technology (MU -6.10%) have borne the brunt of the stock market sell-off in 2022.
However, a closer look at the markets that these companies serve indicates that they could regain their mojo and deliver terrific upside in the long run. It wouldn’t be surprising to see the likes of AMD and Micron turn a $10,000 investment into $100,000 by the end of the decade. Let’s see why.
1. Advanced Micro Devices
AMD has been benefiting big time from multiple catalysts such as gaming consoles, data centers, and personal computers (PCs), as evident from the impressive growth that the company has been clocking in recent years.
The company exited 2021 with a 68% spike in revenue to $16.4 billion. This year, AMD expects to clock 60% revenue growth to $26.3 billion, driven by its acquisition of Xilinx, which was completed in February 2022. A closer look at the markets that AMD serves indicates that it is in a solid position to sustain its momentum.
In the PC market, for instance, AMD can keep growing by cornering more share from bigger rival Intel (INTC -2.62%). According to a third-party estimate, Intel is reportedly sitting on 65% of the PC CPU (central processing unit) market in the second quarter of 2022, with AMD holding the rest. It is worth noting that AMD has been consistently taking share away from Intel in the PC CPU market, and it could keep doing so thanks to its product development moves and Intel’s delays.
The company has announced the launch of Ryzen 7000 processors based on the 5-nanometer (nm) Zen 4 architecture, which it believes could deliver 35% performance gains over its current offerings. These chips are expected to arrive in the second half of the year. However, Intel’s competing Meteor Lake processors, which will be based on a 7nm process, are expected to hit the market only by the end of 2023.
AMD sees a total addressable opportunity worth $50 billion in the global PC market. So a stronger market share should pave the way for robust long-term growth at AMD, especially considering that the chipmaker has other huge catalysts that could supercharge its growth in the long run.
Not surprisingly, analysts are expecting AMD’s earnings to increase at an annual pace of nearly 33% for the next five years. If it can sustain that momentum till 2030, the company’s earnings could increase to $36 per share from $2.79 per share in 2021. The stock is currently trading at nearly 37 times trailing earnings. A similar multiple in 2030 would translate into a share price of $1,330. That would translate into an increase of over 12x from the current stock price, which indicates that this tech stock could turn a $10,000 investment into more than $100,000 by 2030.
2. Micron Technology
Memory specialist Micron Technology is another chipmaker that could give investors’ portfolios a big boost in the long run. That’s because the chipmaker is making the most of the lucrative opportunity in the market for dynamic random-access memory (DRAM) and NAND flash memory chips.
Micron has delivered healthy growth in revenue and earnings this fiscal year. For the first six months of fiscal 2022, Micron’s revenue has shot up nearly 29% over the prior-year number to $15.5 billion, while net income more than tripled to $4.57 billion. The company is benefiting from favorable developments in the memory market, which are likely to continue as demand for DRAM and NAND flash memory grows.
The DRAM market, for instance, is expected to hit nearly $222 billion in revenue by 2030, clocking a compound annual growth rate of 9.2% through the end of the decade. The NAND flash memory market, on the other hand, is expected to hit $95 billion in revenue by 2027, compared to $66 billion last year. Micron is pulling the right strings to corner a bigger share of these markets.
For example, Micron will reportedly start producing its memory chips using extreme ultraviolet (EUV) lithography in Taiwan later this year. This move will allow the chipmaker to shrink the size of its memory chips. The company reportedly manufactures its current DRAM chips based on an 11nm-13nm manufacturing node. The move to EUV lithography will allow it to make chips using a sub-10nm process node.
Chips made using a smaller process node are supposed to be more powerful, power-efficient, and cheaper to manufacture. This could pave the way for Micron to make better memory chips than its rivals and help the chipmaker take share away from the likes of Samsung and SK Hynix, its two main competitors in this space.
The massive end-market opportunity and Micron’s product development moves indicate why analysts are upbeat about the company’s prospects. They expect its earnings to clock a compound annual growth rate of nearly 30% over the next five years. If Micron maintains a similar growth rate through the end of the decade, its earnings could jump to $64 per share, compared to $6.06 per share in fiscal 2021.
Micron stock has a five-year average earnings multiple of 13.7; a similar multiple in 2030 would translate into a stock price of just over $875. That would be an increase of more than 10x from Micron’s current stock price of $66, which indicates that this growth stock is another potential candidate that could turn $10,000 into $100,000 in the long run.