Beyond Nvidia: Promising Tech Stocks Amid Market Volatility

3 Stocks Outside of Nvidia to Buy Amid the Tech Sell-Off | The Motley Fool

These three stocks look attractive after the recent share price pullback in the tech sector. After a strong run in the first half of the year, technology stocks have come under pressure recently. Recent stock price trends suggest investors are taking a more cautious stance on the economy while the mania around artificial intelligence (AI) has also eased. Even high-flying Nvidia has been affected, with the stock trading down nearly 20% over the past six months. But this recent sell-off also presents some opportunities. Let's look at three tech stocks (that aren't named Nvidia) that investors should consider buying amid this latest market adjustment. Taiwan Semiconductor Manufacturing (TSM -4.20%), or TSMC for short, is the leading semiconductor fabrication contractor in the world. Today, many semiconductor companies don't produce their own chips. Instead, they outsource the process to companies that specialize in chip manufacturing. While outsourced manufacturing may not sound like an exciting business, don't be fooled -- this is a highly complex process that is ruled by the companies that can do it best. In fact, the contract manufacturing unit of Intel, which was created in 2021 to compete with TSMC, recently suffered a large setback after chip designer Broadcom said tests it conducted showed that Intel's newest process was not ready for high-volume production. At the same time, TSMC has been leading the way in technological innovations, with the company set to introduce 2-nanometer production technology next year. The smaller the chip density, the better the performance and consumption power. With demand for AI chips becoming insatiable, the company has been increasing its capacity and building new fabrication facilities. Given the high demand for its services, TSMC is also set to raise prices on its more advanced technologies. Morgan Stanley analysts estimate it will raise prices this year by 10% for AI semiconductors and chip-on-wafer-on-substrate (CoWoS), 6% for high-performance computing, and 3% for smartphones. Trading at a forward price-to-earnings (P/E) ratio of about 19 based on next year's analyst estimates, the stock is still attractively valued, especially given the growth prospects in front of it. While TSMC makes the chips for semiconductor companies, ASML (ASML -5.38%) makes the highly specialized equipment used by companies like TSMC to manufacture these chips. As TSMC and others expand their production to meet the increasing demand for AI chips, they will need more equipment to produce those chips. Not surprisingly, the semiconductor equipment manufacturing business can be lumpy, as these are very expensive pieces of equipment. These machines have a typical life cycle of about seven years before they need to be replaced or refurbished. Meanwhile, 2024 is a bit of a transitional year for ASML as it introduces its newest technology: a high numerical aperture extreme ultraviolet lithography system, or high NA EUV. The company says the new machines will increase chip manufacturing productivity while lowering production costs and improving chip functionality. The company has shipped two of its high NA EUV systems thus far, with one running qualification wafers. With a price tag of $380 million per unit, these new systems are pricey and should help drive revenue for ASML next year and beyond as chip manufacturers move to the newest technology to help meet demand for AI chips. That, combined with the number of new fabs set to come online over the next few years, bodes well for ASML's long-term prospects. At a prior analyst day, ASML management set targets to grow revenue to between 30 billion to 40 billion euros ($33.3 billion to $44.4 billion) in 2025 and to 44 billion to 60 billion ($48.8 billion to $66.6 billion) by 2030. The company produced 27.6 billion euros ($30.6 billion) in revenue last year, and it expects similar revenue this year. Trading at a forward P/E of just over 24 times based on 2025 analyst estimates, ASML's stock looks attractive, given the growth inflection in front of it. Arm Holdings (ARM -4.71%) is the leading semiconductor company for central processor units (CPUs), which are often described as the brain for devices. The company has a dominant position in the smartphone market, with its technology in virtually all smartphones around the globe. Meanwhile, Arm is taking aim at the personal computer (PC) market as well. The company's technology is currently in all Apple computers and laptops, but its goal now is to be in 50% of Windows-based PCs in the next five years. While not as large of a market as smartphones, this is still a nice opportunity for the company. Arm has also been making solid inroads in the automotive market. It reported year-over-year revenue growth of 28% in the sector in Q2. Arm benefits from AI as well. Last quarter, Arm noted that it saw increased licensing in the AI data center due to the need for customization, while it collaborated on a super chip with Nvidia that combines an Arm-based CPU with an Nvidia graphics processing unit (GPU). Its technology is also the basis for CPU data center chips from Amazon and Alphabet. While semiconductor companies like Nvidia and Broadcom design their own chips, Arm employs a different model in which it licenses its technology to other companies to allow them to design their own chips based on its technology. Through its licenses, it collects royalties on the number of chips shipped that have incorporated its technology. This revenue stream could last years or even decades. More recently, the company has been shifting customers to a subscription model, where they can get a wider range of use of its intellectual property. Whether through royalties or subscriptions, Arm has a very high-margin, largely recurring revenue stream. Based on 2025 analyst estimates, Arm stock trades at a forward P/E of just over 60.5 times. While that is not cheap on the surface, it's down from higher levels, and Arm has one of the most attractive and long-tail business models in the semiconductor space.

Nvidia Stock Fell After Earnings. These 3 Stocks Might Be Better Buys. | The Motley Fool

Nvidia's success made it easy to overlook other stocks with significant growth potential. Investors could be growing uncertain as the Nvidia trade appears to have unwound. Despite the company's recent near-perfect earnings report, investors are selling the stock as doubts rise about its high valuation. So investors could be wondering where to invest next. These three Motley Fool contributors have suggestions on three stocks that have a higher likelihood of moving up: Meta Platforms (META -3.21%), Monday.com (MNDY -3.23%), and Nu Holdings (NU -4.46%). Jake Lerch (Meta Platforms): With Nvidia losing some steam in recent weeks, I'm turning my attention away from the king of artificial intelligence (AI) and toward the king of digital advertising, Meta Platforms. Its stock has flown under the radar for much of 2024. While Nvidia and other high-profile AI stocks have grabbed headlines, Meta has skyrocketed 45% year to date. That makes it the fifth-best performing stock in the Nasdaq 100. What's more, its surge is thanks to good, old-fashioned execution. Meta, with its more than 3 billion daily average users across its Facebook and Instagram platforms, continues to stack cash like an ice cream shop stacks scoopfuls during a heat wave. The company generated nearly $50 billion in free cash flow over the last 12 months -- almost $19 a share. With so much cash pouring in, the company's balance sheet is rock-solid: over $58 billion in cash and equivalents with only $38 billion in debt, for a net cash position of about $20 billion. With so much free cash flow, Meta has now started returning a sizable portion of that hoard to investors. In February, Meta announced its first-ever dividend, a regular quarterly payment of $0.50 a share. At the current price, that's a dividend yield of only 0.4%. Yet it shouldn't be ignored. Moreover, management also expanded its share buyback program to $50 billion. In combination, these two measures, along with Meta's ample free cash flow, are why investors should consider the stock as a suitable alternative to Nvidia. Simply put, this cash cow is too big to ignore. Justin Pope (Monday.com): Every software stock looked like a winner in 2021, but higher interest rates have created a more challenging economy in which investors have seen the cream rise to the top. Monday.com has proved itself to be a winner, which should have investors salivating at the company's still-bright long-term prospects. It's a software-as-a-service (SaaS) business that sells diverse and easily customizable work-management software. When Monday.com went public, it wasn't clear that companies would truly stick to its product, but the results speak for themselves. Its excellent revenue growth includes a 34% year-over-year increase in the second quarter. Monday.com has a 114% net revenue retention rate among customers that spend over $50,000 on the platform, and the number of companies spending that much grew faster than revenue did in the second quarter, up 43% year over year. There are now roughly 225,000 companies using Monday.com, a large pipeline that will begin to generate significant revenue. The financials are improving as the business grows, too, with $261 million in free cash flow over the past four quarters on $845 million in sales. The company has $1.3 billion in cash and no debt, and it is profitable under generally accepted accounting principles (GAAP) over the past few quarters. So Monday.com is no longer a speculative stock; it's a financially stable company that could enjoy strong earnings growth. It's among some of the more expensive technology stocks on Wall Street, but quality is rarely cheap. Shares trade at an enterprise-value-to-sales ratio of just over 11, still far less than Palantir and CrowdStrike. Long-term investors can still buy Monday.com today and enjoy years of strong investment returns from profitable growth. Will Healy (Nu Holdings): When looking for new bull markets, undervalued stocks can be an excellent place to start. Among fintechs, perhaps few are less understood by U.S. investors than NuBank parent Nu Holdings. The stock attracted early attention from Warren Buffett's Berkshire Hathaway, which bought it after its initial public offering. But despite attracting Buffett's interest, most U.S. investors can be forgiven for not knowing Nu. Even though it is the largest digital bank outside of Asia, most of its customers are in Brazil. Now, with its success there, it seeks to repeat its formula in Mexico and Colombia. Unlike in the U.S., Latin American banking was traditionally dominated by a small number of banks. The sway these banks held over their countries left large percentages of the population with neither bank accounts nor credit cards. NuBank has changed this by issuing credit cards to millions of previously unbanked customers. Also, as a digital bank, the lower overhead costs that come with not operating branches have helped it build a competitive advantage. So successful is its approach that nearly 21 million of its 105 million customers opened their first Nu account over the last year. Not surprisingly, such growth has appeared in its financials. In the first two quarters of 2024, revenue of $5.6 billion grew 60% compared with the same period in 2023. During that time, Nu kept operating expenses in check. That allowed it to earn $866 million in net income in the first half of 2024, 136% more than in the first six months of 2023. Investors have begun to take notice. The stock rose steadily over the last year, more than doubling over the last 12 months. Still, despite that increase, it sells at a price-to-earnings ratio (P/E) of 45, a low level considering the triple-digit profit growth for the year. All in all, such conditions indicate undervaluation, implying its rally can continue. If investors can overlook the different financial culture in Latin America, they can still profit from this tremendous opportunity.