3 Stocks I Am Buying During This Tech Selloff

U.S. tech stocks seem to have entered a correction phase in 2022. Much of the decline can be attributed to an imminent tightening in monetary policy, as the U.S. Federal Reserve struggles to control inflation that is much higher and stickier than anticipated.

While the correction is well-justified for speculative tech stocks, some fundamentally strong and financially stable stocks such as Nvidia (NASDAQ:NVDA), Microsoft (NASDAQ:MSFT), and Taiwan Semiconductor Manufacturing (NYSE:TSM) are also being unduly punished. Hence, this period of broader market decline can prove to be a reasonable entry opportunity for long-term retail investors to get their hands on these stocks.

Let’s see why they can prove to be attractive picks during the current tech sell-off.

1. Nvidia

Nvidia’s market-leading graphics cards and artificial intelligence (AI) processors enjoy solid demand in several lucrative markets such as gaming, autonomous driving, data centers, machine learning, and artificial intelligence.

Nvidia’s GeForce RTX-powered high-performance laptops have been in huge demand since the start of the pandemic. More and more people have been using these laptops not only for competitive gaming but also for content creation, remote work, and online education activities. Nvidia currently accounts for an 80% share of the global gaming laptop market (estimated to grow from $10.96 billion in 2020 to $17.82 billion in 2026). Since 85% of the GeForce gaming installed base is currently operating on older GTX cards, Nvidia also continues to benefit dramatically from gamers upgrading to the new and faster RTX-powered laptops.

Nvidia’s high-performance GPUs are also used extensively in major cloud computing operations that require high-performance computing and run artificial intelligence algorithms. The company’s hardware and software offerings also have multiple applications in areas such as virtual reality and augmented reality as well as in the emerging metaverse opportunity.

Analysts are estimating Nvidia’s sales to grow by 60% year over year in fiscal 2022. The company is also profitable. Although Nvidia is currently trading at a price-to-earnings multiple close to 72 (which is not cheap), it is still reasonable compared to the level at which the company has traded for most of 2021. Hence, now may be just the right time to buy shares of this graphics card specialist.

2. Microsoft

Microsoft has been all over the news recently after it announced plans to acquire Activision Blizzard in a $68.7 billion all-cash transaction. Recently, the company also posted impressive second-quarter results (ending Dec. 31, 2021) with revenue and adjusted earnings per share surpassing consensus estimates. The company continues to benefit from several secular tailwinds such as ongoing enterprise digital transformation, shifting of on-premise enterprise workloads to hybrid and cloud IT architectures, enterprise security, artificial intelligence, automation initiatives, and gaming.

Azure and other cloud services reported 46% year-over-year growth in revenue in the second quarter. While this seems to be a deceleration from 50% year-over-year revenue growth reported in the first quarter, the strength of commercial bookings (driven by large, long-term Azure contracts) implies the possibility of stronger Azure performance in the coming quarters. Thanks mainly to its dominant position in hybrid cloud computing, the Azure cloud computing service accounted for 21% share of the global cloud infrastructure services market at the end of September 2021, a significant jump from 13.7% share at the end of 2017.

The metaverse is another major upcoming growth opportunity for Microsoft. After Activision’s acquisition, the company will become a key provider for several building blocks (cloud and gaming infrastructure, content, captive customer base, augmented and virtual reality hardware, and collaboration software) required for developing metaverse platforms.

These are only a few of the lucrative trends that Microsoft is targeting for future growth. Yet, despite the many pros, Microsoft is still trading at only 31.6 times earnings, close to its lowest valuation multiple in the last year. Hence, considering its solid near-term and long-term growth prospects, it seems to be a good idea to purchase this stock on the current dip.

3. Taiwan Semiconductor Manufacturing

Being the largest pure-play semiconductor foundry in the world, Taiwan Semiconductor Manufacturing (TSMC) is a big beneficiary of the ongoing global supply and demand mismatch in semiconductors. The company is well-poised to leverage the rapidly rising semiconductor demand in areas such as 5G, Internet of Things, autonomous driving, data centers, and gaming. TSMC recently released stellar fourth-quarter results (ending Dec. 31, 2021), which included record profits and much higher than expected guidance for the first quarter (ending Mar. 31, 2022).

TSMC has announced plans to invest $40 billion to $44 billion in capacity expansions in 2022, which is almost 40% higher at the midpoint on a year-over-year basis. The company aims to use 70% to 80% of its capex budget to increase the manufacturing capacity of advanced nodes. These investments can prove highly lucrative for TSMC, considering that 7-nanometer and below nodes accounted for almost half of the company’s wafer revenue in the fourth quarter. Thanks to the chip shortage and increasing adoption of smaller (advanced/leading-edge) nodes, the company has also increased its chip prices for 2022.

TSMC enjoys a solid moat since it manufactures almost half of all semiconductor chips and 90% of the advanced chips in the world. The company is also a partner to several fabless tech giants, such as Apple, Qualcomm, and Advanced Micro Devices. While competition from Samsung and Intel cannot be ignored, TSMC’s huge annual capex ensures that the company remains ahead of its rivals in the race to manufacture advanced chips. At the end of September 2021, TSMC accounted for 53.1% of the global foundry market share, well ahead of the 17.1% share held by second-leading foundry player Samsung.

Against this backdrop, the current pullback in TSMC’s share prices offers a good entry opportunity to retail investors for multi-year growth prospects.