The 2022 bear market can be summarized in three words: plummeting technology stocks. Of course, there were many variables that caused stocks to fall 20% or more last year, but none was more important than the popping of the tech stock bubble. Share prices of so many leading companies in 2020 and 2021 fell as much as 50% or more in just a few quarters, driving many investors away from the sector. But smart long-term investors know that falling stocks offer an opportunity to put their foot on the gas, not slam on the brakes.
Declining prices can provide fantastic buying opportunities for investors with multiyear mindsets. Here are three tech stocks that are great buys right now.
1. Amazon: Is the cloud actually underestimated?
E-commerce pioneer Amazon (AMZN -1.11%) operates in many countries worldwide and has a 37.8% market share in its home U.S. market. With the global e-commerce industry projected to grow at a steady rate for the rest of this decade, Amazon has a clear opportunity to grow its revenue for many years if it can retain this market share lead.
But even with that huge opportunity, the most valuable part of Amazon actually lies in its cloud division, Amazon Web Services (AWS). AWS is a cloud infrastructure provider, building data centers and computing tools that can be rented to other software customers like Netflix or the NFL. Over the last 12 months, the division generated $76.5 billion in revenue and $23 billion in operating income for a 30% operating margin. This is much more profitable than Amazon’s retail division, which is still struggling to generate consistent operating income.
What’s great about AWS is the clear line of sight the cloud infrastructure market has to grow. Analysts project the cloud market will grow at 15% a year through 2030, providing a steady opportunity for AWS as long as it can retain its market share. With a 30% operating margin, AWS alone could start generating $50 billion in operating income for Amazon each year. That makes the stock an easy buy at its current price, which is 45% off its all-time high.
2. Applied Materials: Riding the chip boom
My next stock is a bit more unknown but still vital to the world economy: Applied Materials (AMAT 2.70%). The semiconductor equipment company sells tools and machinery to computer chip manufacturers that, according to the company, are used in the making of virtually every computer chip in the world.
This has been a pretty darn good business to be in with the booming use of computer chips in virtually every industry. Over the last 12 months, Applied Materials generated $25.8 billion in revenue and $6.5 billion in net income. With a market cap of $95 billion, that gives the stock a trailing price-to-earnings ratio (P/E) of 14.6, which is below the market average of approximately 20.
The semiconductor industry can be cyclical, which might drive down earnings for Applied Materials in the near future. But over the long term, semiconductor manufacturers are looking to grow their production lines, which only means more demand for Applied Materials equipment. Trading at a P/E below the market average, Applied stock looks like a great buy right now.
3. Autodesk: Software for people who build things
My last pick is Autodesk (ADSK -0.18%). Autodesk is a software giant that sells products to individuals and companies that design, build, and engineer real-world projects. Its core customer base comes from the architectural, engineering, and construction markets.
With high switching costs, Autodesk has been able to retain its market share within its core markets for many years. Since the company went public in the late 1980s, Autodesk’s revenue is up almost 50,000%, which has been driven by the increasing usage of software in industrial and infrastructure projects. Being a software company, Autodesk is also highly profitable, with a gross margin north of 90%. Even though it is still pouring tons of money into sales and product development, the company generated $1.8 billion in free cash flow over the last 12 months.
Steady growth and strong underlying profitability contribute heavily to a great recipe for long-term stock appreciation. With shares down almost 40% from recent highs, Autodesk is a perfect stock to buy in this technology bear market.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Brett Schafer has positions in Autodesk. The Motley Fool has positions in and recommends Amazon.com, Applied Materials, Autodesk, and Netflix. The Motley Fool has a disclosure policy.