Nvidia (NASDAQ:NVDA), Ambarella (NASDAQ:AMBA), and Synaptics (NASDAQ:SYNA) have crushed the stock market in 2021, as shares of all three tech companies have appreciated substantially on the back of the tremendous growth in their businesses.
Nvidia has been riding the wave of massive graphics-card demand, while the demand for Ambarella’s computer-vision chips has blown up, thanks to their usage in cars and security cameras. Synaptics has turned out to be the biggest gainer of the lot as its Internet of Things (IoT) chips are in great demand.
However, the huge appreciation in the stock prices of these three companies has made them expensive, which is why investors should be on the lookout for pullbacks to buy more of them. A potential stock market crash could allow savvy investors to buy them at a relatively cheaper valuation.
Let’s see why buying these three unstoppable stocks in the event of a market crash looks like a good idea.
Nvidia stock trades at 95 times trailing earnings after its hot rally in 2021. While its forward price-to-earnings (P/E) ratio of 60 points toward huge bottom-line gains, it’s still not cheap. A dip in Nvidia stock in the event of a market crash could make this graphics specialist relatively affordable, and investors should consider grabbing such an opportunity with both hands.
Nvidia is one of the best ways to capitalize on several technology trends ranging from video gaming to data centers to self-driving cars and the metaverse. Some of these markets are already firing big time for Nvidia. For instance, the gaming and data center markets currently account for nearly 87% of the chipmaker’s revenue and seem built for outstanding long-term growth.
Nvidia’s gaming revenue was up 42% year over year in the third quarter of fiscal 2022 to $3.22 billion, while the data center business recorded 55% growth over the prior-year period to $2.93 billion. Nvidia’s total quarterly revenue had increased 50% year over year to $7.1 billion. The reason why Nvidia is clocking outstanding growth in the gaming and data center markets is because of its dominance in those markets.
Jon Peddie Research points out that Nvidia had an 83% share of the discrete graphics processing unit (GPU) market in the third quarter of 2021. The chipmaker seems well placed to hold on to such a huge share of the discrete GPU market as its user base is upgrading to its latest cards. Nvidia CFO Colette Kress pointed out on the company’s November earnings call that “NVIDIA RTX technology is driving our biggest ever refresh cycle with gamers.”
Sales of graphics cards are expected to jump to $54 billion in 2025 from $23.6 billion last year as per Jon Peddie Research. Nvidia’s strong market share and 85% of its installed base of users are in line to upgrade to a new card, so its gaming momentum is here to stay.
The data center business is another long-term catalyst for Nvidia as the company has introduced new chips to expand its addressable opportunity in this vertical. The launch of a data processing unit (DPU) has added significantly to Nvidia’s data center opportunity, while its foray into data center server processors is likely to unlock another massive market. Throw in additional growth drivers such as self-driving cars and the metaverse, which could significantly boost Nvidia’s long-term growth, and it’s easy to see why this unstoppable stock can continue rallying and is worth buying in the event of a market crash.
Ambarella stock’s terrific rise in 2021 has sent its price-to-sales ratio to almost 25, which is substantially higher than its five-year average sales multiple of 8.6. This rich valuation isn’t surprising, considering the pace of Ambarella’s growth this year.
The company’s revenue in the third quarter of fiscal 2022 was up 64% year over year to $92.2 million, while adjusted earnings shot up to $0.57 per share from just $0.09 per share in the year-ago period. A look at Wall Street’s estimates indicates that Ambarella’s high-growth levels are here to stay for a long time. The chipmaker’s earnings could clock a compound annual growth rate of nearly 87% for the next five years, which isn’t surprising given the addressable opportunity that it can tap into.
Ambarella management said on the company’s December earnings call that it has a potential revenue opportunity of $1.8 billion in the automotive-camera market. It’s already secured $700 million worth of design wins. Given that Ambarella is on track to generate $331 million in revenue this year, the company’s automotive design-win pipeline indicates that it could continue to increase its top line at an impressive pace.
More importantly, Ambarella’s revenue opportunity can keep expanding in the long run, thanks to the deployment of more cameras in vehicles, as well as the growing adoption of internet-enabled security cameras. Fortune Business Insights estimates that the automotive-camera market could hit $10 billion in value by 2027, growing at an annual pace of 21.5% in the long run.
Meanwhile, the internet-enabled camera market is also expected to clock annual growth of 14% through 2025 and exceed $20 billion in revenue at the end of the forecast period, according to Global Market Insights. The good part is that Ambarella’s security-camera chips are being deployed by OEMs (original equipment manufacturers) across the globe. The company is gaining market share outside of China and expanding its presence worldwide while leading Chinese camera-makers Hikvision and Dahua also use its chips.
All this indicates that Ambarella remains a solid play on the increasing usage of cameras in key applications. That should help it sustain terrific earnings growth for a long time to come.
Synaptics stock price has more than tripled in the past year as the company turned a corner, thanks to its focus on selling more IoT chips instead of personal computer (PC) or smartphone chips. The chipmaker’s IoT revenue had jumped 70% year over year in the first quarter of fiscal 2022 and accounted for 55% of the top line.
The segment’s impressive growth led to a 13.5% year-over-year jump in Synaptics’ quarterly revenue to $372.7 million, while adjusted earnings shot up 45% year over year to $2.68 per share. Analysts expect Synaptics’ growth to pick up the momentum as the year progresses, forecasting an 18% increase in revenue and a 36% increase in earnings per share.
The company is expected to clock 15% annual earnings growth for the next five years, though don’t be surprised to see it exceed that mark. That’s because Synaptics sees tremendous growth in its IoT business, thanks to new product ramps and new design wins. CEO Michael Hurlston pointed out on the November earnings conference call that, “In general, our wireless products are seeing increased design win traction across a long tail of customers and applications, giving us confidence in believing we will achieve our target of doubling revenues again over the next 18 months.”
More specifically, Synaptics’ WiFi Bluetooth combo chips are its fastest-growing offerings, as they’re used across a variety of applications such as fitness equipment and handheld scanners. With the global IoT connectivity market set to clock nearly 21% growth through 2026 and Synaptics’ IoT sales growing at a faster pace than the broader market, the chipmaker seems to have a bright future ahead.
However, the stock is trading at a rich 92 times trailing earnings and 8.43 times sales. For comparison, Synaptics was trading at 2.55 times sales in 2020 and a price-to-earnings ratio of 30. That’s why investors should consider taking advantage of any dip in Synaptics in the event of a market crash and add this unstoppable IoT stock to their portfolios.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.
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