Economists predicted a 0.1% drop in prices from July and an 8.1% year-over-year increase. However, the unfavorable readings put the cat among the pigeons and on September 13, the stock market saw its worst day since June 2020.
This sale means that celebrated investor Cathie Wood, CEO of investment management firm ARK Invest, continues to have a torrid time this year when it comes to her choices. The ARK Innovation ETF it lost 57% of its value in 2022, which is not surprising considering the fund’s exposure to fast-growing companies that could disrupt the sectors.
Two of the fund’s components – Nvidia (NVDA 0.65%) And Drive software (U -0.85%) – witnessed a brutal sale this year. While Nvidia fell 55% in 2022, Unity Software shares plummeted 74%. However, both of these stocks could make a fantastic return over the next five years and their stock prices could double. Let’s see why.
Nvidia’s year went from bad to worse in the past few days after the U.S. government imposed restrictions on data center chip sales on China, a move that could further dent the company’s ability to reverse its business. in the short term. Nvidia is already struggling with weak demand from the gaming segment where there is an oversupply of graphics cards.
Weakness in the gaming and data center markets, which are two of Nvidia’s largest businesses, means the tech giant’s near-term prospects aren’t all that great. Apparently, analysts expect the company’s top line to remain stable in fiscal year 2023 at $ 27 billion, a far cry from the 61% revenue growth it experienced last fiscal year.
However, Nvidia is expected to regain its mojo in fiscal year 2024.
Additionally, Nvidia is expected to sustain its impressive earnings growth over the next five years, with analysts forecasting a 23% annual earnings increase over the forecast period. This comes as no surprise as Nvidia has some solid growth drivers that could help it out of its slump and deliver healthy growth over this time frame.
Demand for gaming graphics cards, for example, is expected to increase at an annual rate of 14% through 2026, according to Mordor Intelligence. This does not seem surprising as the market for personal computer (PC) games is expected to thrive in the long term thanks to the influx of new players. IDC estimates that gaming PC shipments could exceed 52 million in 2025 compared to 41 million units shipped in 2020. This would represent a 27% increase in units shipped from the 2020 figure.
Given that Nvidia is the leader in the gaming graphics card market with an estimated market share of nearly 80%, according to Jon Peddie Research, it is in a good position to take advantage of the long-term growth opportunity in this space. Likewise, the data center market will be another major catalyst for Nvidia. The company has expanded its addressable opportunities in the data center space with the addition of server chips to its product portfolio, an area where it was not previously present.
All of this indicates that Nvidia is in a solid position to increase its earnings at a good pace over the next five years. Assuming the company records the 23% annual earnings growth forecast by analysts, its profits would increase to $ 9.54 per share after five years, based on estimated earnings for the current fiscal year of $ 3.39 per share. action.
The stock is currently trading at 43 times earnings forward, which is in line with the five-year average. This assumes that a similar multiple after five years results in a share price of around $ 381, which would be nearly triple Nvidia’s current share price of around $ 135. So, savvy investors may want to take advantage of the steep drop. of this tech stock, as it looks built for solid long-term growth.
2. Drive software
Unity Software stock has lost its wheels over the past year, with its post-IPO (Initial Public Offering) rise now looking like a long-lost memory.
Unity’s fall from grace is not surprising. The stock traded at 40 times sales in 2021, and the market hasn’t been kind to companies with such high valuations this year. At the same time, Unity’s pace of growth has slowed significantly. Second quarter revenue increased only 9% year-over-year to $ 297 million. For comparison, Unity’s revenue in 2021 increased 44% to $ 1.1 billion.
Analysts expect Unity to end 2022 with revenue growth of nearly 22%; similarly, they expect the loss per share to double to $ 0.44. However, Unity’s growth is expected to pick up from 2023. Analysts expect a peak growth of 27% next year to $ 1.72 billion, while the loss is expected to drop to $ 0.03 per share.
The company is expected to become profitable in 2024 with a profit of $ 0.23 per share.
Unity appears to be able to experience such impressive growth as it provides services to create and manage 3D and 2D content in real time. The demand for its offerings is expected to increase in the long run thanks to catalysts such as the metaverse. For example, demand for digital twin services offered by Unity is projected to increase at an annual rate of nearly 40% through 2030, with the market expected to reach $ 126 billion in revenue at the end of the forecast period.
All of this tells us why analysts expect 69% annual profit growth from Unity for the next five years. Such impressive earnings growth could positively impact Unity in the long run. They could also help the stock double. This makes Unity stocks an ideal bet for investors looking to buy stocks of a popular name with the potential for impressive long-term gains.