With the uprising of tech over the last several years, technology stocks have been a beautiful place for investors to park their hard-earned cash. However, these seemingly unstoppable and once high-flying names have suddenly taken a downwards trajectory, leaving shares stuck in nasty downtrends for nearly all of 2022.
A hawkish Fed has massively impacted the majority of these stocks throughout 2022. Needing to combat inflation rates we haven’t seen in decades, the Fed decided to raise interest rates. This affects the high-flying tech and growth stocks drastically; investors price in lower future cash flows due to the increasing cost of debt needed to fuel growth.
While the sentiment towards these names has significantly shifted, it’s very beneficial to keep a bullish stance on these companies looking at the long-term picture. After all, they have established themselves in the market quite notably and are innovating in areas that will be vital for the world moving forward.
We’re here to look at three big players in the tech arena – Apple AAPL , Advanced Micro Devices AMD , and Microsoft MSFT . After having their valuations slashed, it brings us a unique opportunity to buy these companies at levels not seen in quite some time.
The chart below illustrates the year-to-date performance of all three stocks – AAPL, AMD, and MSFT – while throwing in the S&P 500 as a benchmark. As we can see, 2022 hasn’t been kind to these names, with significant sell-offs occurring in all three.
Image Source: Zacks Investment Research
Upon widening the time frame to the past five years, we can see just how high these companies have climbed, still being able to outpace the general market in the face of a brutal 2022.
Image Source: Zacks Investment Research
The point is – the story is long from over for these tech giants, but instead, we’re just in a sad chapter. Investors shouldn’t turn their backs on stocks that they once loved and would buy without hesitation. We’re here to look at why these three companies are still solid investments looking forward long-term.
Advanced Micro Devices
The tech rout has drastically affected Advanced Micro Devices (AMD), causing its forward P/E ratio to slide down to a more enticing level of 23.9X. The value is an absolute fraction of its high of 107.2X in Q1 FY20 and well below 2021 highs of 67.8X. Additionally, the metric is the lowest we’ve seen since March 2018.
The company has also been providing investors with robust quarterly results. Over its last four quarters, AMD has acquired an average EPS surprise in the double-digits of 19%, and in its latest quarterly release, the company beat the Zacks Consensus EPS estimate by a sizable 24%. Additionally, AMD’s forecasted long-term EPS growth is sitting pretty at 33%.
AMD expects extreme demand to continue for its products due to its cutting-edge technology and its already established stance in a skyrocketing videogame industry.
Advanced Micro Devices, Inc. Price, Consensus and EPS Surprise
Advanced Micro Devices, Inc. price-consensus-eps-surprise-chart | Advanced Micro Devices, Inc. Quote
Apple
Investors’ favorite, Apple (AAPL), has a rough 2022, but shares have displayed a higher level of defense than many other tech names year-to-date. Its current forward-earnings multiple has retraced down to 25.7X, well below its 2020 high of 41.5X and slightly above its median of 19.3X over the last five years. Furthermore, the valuation ratio is the lowest since June 2021.
The company has a history of exceeding EPS estimates. Over its last four quarterly reports, there has been only one time it didn’t beat the consensus EPS estimate and was in line with expectations. Additionally, the company has acquired an average EPS surprise in the double-digits of 12% over this same period, and in its latest quarter, AAPL beat the Zacks Consensus Estimate by a sizable 7% in the face of adverse business conditions.
Apple has recently become a significant player in the wearable product arena. Its groundbreaking AirPods and revolutionary Apple Watch has allowed the tech giant to diversify its portfolio much beyond its flagship iPhone and has even thrust itself into the health monitoring space.
Apple Inc. Price, Consensus and EPS Surprise
Apple Inc. price-consensus-eps-surprise-chart | Apple Inc. Quote
Microsoft
Microsoft (MSFT), another staple in any tech investor’s portfolio, has had its forward-earnings multiple retrace down to 29.5X, well below its 2020 high of 37.5X and just slightly above its median of 28.1X over the last five years. Additionally, the value is the lowest we’ve seen since March 2020.
MSFT has a stellar track record in exceeding EPS estimates, as the last time quarterly results fell short of expectations was all the way back in 2016. Over its last four quarters, the tech giant has posted an average EPS surprise of a considerable 9%, and in its latest quarterly release, MSFT exceeded the Zacks Consensus EPS Estimate by a slight 2%.
MSFT’s gaming segment is a bright spot moving forward; its revolutionary Xbox Game Pass service subscriber count exceeded 25 million active players in 2022. Pairing this with the Activision Blizzard ATVI games it acquired in early 2022 with approximately 400 million monthly active players will propel its top line.
Microsoft Corporation Price, Consensus and EPS Surprise
Microsoft Corporation price-consensus-eps-surprise-chart | Microsoft Corporation Quote
Bottom Line
It’s been a sad year for tech. Investors have seen their favorite companies’ shares drop immensely in value. However, it’s essential as an investor to always look at the big long-term picture of things. Additionally, these tech stocks’ valuation multiples soared to seemingly unsustainable heights during the bull run of 2020 and 2021, and now it’s time for them to take a step back.
The pullback seems healthy. Furthermore, these companies have established themselves in crucial aspects of the world. Apple’s iPhone has kept its traction, AMD’s chips will be needed in many facets of life, and Microsoft has a robust gaming portfolio paired with spectacular cloud computing services.
Investors should no doubt sleep soundly with these tech names in their portfolios. Market participants need to keep their heads high and be ready to pounce on these companies once again as soon as the forecast clears up.
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