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Down years in the tech sector are quite rare. In fact, the Nasdaq-100 technology index has delivered a positive annual return 78% of the time since 1986. Moreover, consecutive down years are even more rare — that has only happened once for the Nasdaq-100, during the dot-com bust from 2000 to 2002.
But losses are fresh in investors’ minds, because 2022 happened to be one of those unlucky years. The tech index plunged 33%, and many individual stocks fared even worse.
History shows that the market usually comes back strong. The table below shows the return of the Nasdaq-100 in the first positive year following the losses recorded in 1990, 2002, 2008, and 2018.
Year
Nasdaq-100 Return
1991
65.0%
2003
49.1%
2009
53.5%
2019
38.0%
2023
TBD
The average of those returns is 51%, so if we’re using history (and history alone) as a guide, that’s an indication of what might be in store for 2023. But, of course, it’s not that simple. Economic challenges like high inflation and rising interest rates will need to be resolved before the stock market rockets higher, because those factors are putting pressure on household and corporate finances.
The good news is inflation appears to have peaked in June 2022, declining every month since then. If the trend continues, that could reignite investors’ appetite for stocks — and here are two you’ll want to own if that happens.
Alphabet (GOOGL 1.32%) (GOOG 1.60%) is the parent company of brands like Google and YouTube. Google is the largest internet search engine in the world with a 92% market share, and along with YouTube, it relies on advertising for nearly all of its revenue.
Since consumers have less money to spend at the moment due to economic challenges, businesses are spending less money to market to them, which has dealt a direct blow to Alphabet’s revenue through Google Search and YouTube. But the upshot is that if 2023 ends up being a much stronger year than 2022, those two platforms could come roaring back.
Plus, YouTube has some exciting changes on the way that could significantly boost its ability to generate revenue in the future. One of them is the rapidly growing adoption of short-form video through its Shorts platform, which now boasts 1.5 billion monthly active users after launching just two years ago, placing it on par with ByteDance’s TikTok.
When Alphabet’s 2022 financial results are officially announced in February, Wall Street analysts expect the company will report $283 billion in revenue and $4.71 in earnings per share. From a valuation standpoint, as measured by the stock’s price-to-earnings ratio of 17.1, it’s currently trading at its cheapest level in about a decade. That’s mainly because Alphabet stock has declined 43% from its all-time high. If 2023 does bring a broader market recovery, that discount is going to look like an incredible opportunity.
Nvidia (NVDA 4.16%) is a world-leading semiconductor company. It produces some of the most sought-after chips designed for personal computing, data centers, and even cars. Last year was a difficult one for the company as consumers pulled back their spending, which sent its gaming segment revenue down 51% in the third quarter of fiscal 2023 (ended Oct. 30).
If consumer demand bounces back in calendar 2023, it could breathe life into what was once Nvidia’s largest driver of revenue. But this company generates sales in more ways than one, and its data center unit has now taken charge of its financial fortunes — and it certainly hasn’t stopped growing. The data center will be critical for the next decade as advanced technology like artificial intelligence helps businesses squeeze more value out of their digital assets and cloud computing services.
But that’s not the only long-term opportunity on Nvidia’s horizon. Its Drive platform consists of hardware and software products designed to help automotive manufacturers install fully autonomous self-driving capabilities into their cars, and while still small, it’s the fastest-growing part of Nvidia’s whole business at the moment. So far, Drive has attracted at least 35 of the world’s largest car makers.
Amid the uncertainty in gaming and the weaker economy overall, Nvidia stock has declined by 57% from its all-time high. If the broader market rebounds in the same way it has after previous down years, that discount might turn out to be a bargain.
Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Anthony Di Pizio has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet and Nvidia. The Motley Fool has a disclosure policy.
*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.
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