Stock market sell-offs happen for a variety of reasons, but no matter the cause, it is inevitable that many investors will be gripped by fear. This can lead to even more selling, creating a cascade effect.
However, these moments of panic can also present unique opportunities to purchase stocks at a discount. By focusing on strong businesses during market downturns, investors can uncover some wonderful buying opportunities at attractive prices.
Here are three growth stocks with strong secular tailwinds at their backs that should position them to thrive even when the stock market takes a hit.
Broadcom
Semiconductor and infrastructure software company Broadcom (NASDAQ: AVGO) has been on quite a run lately as the surge in artificial intelligence (AI) demand has been very good for its business. In its most recently reported quarter, Q2 of 2024, Broadcom's AI-related revenue grew by 280% year over year. That level of growth is unsustainable, but it demonstrates that the company is in the right place at the right time.
Even before this AI-driven revenue increase, Broadcom was performing well as a business. It has been consistently profitable and it routinely and consistently generates free cash flow. However, it also traded for a much more reasonable valuation. Today its price-to-earnings (P/E) ratio is 69, compared to 25 in late 2023.
Nvidia
No company has exemplified the AI boom as strikingly as Nvidia (NASDAQ: NVDA) , which saw astonishing revenue growth in its data center segment in 2023 and ignited the AI hype cycle for numerous companies. In the first quarter of Nvidia's fiscal 2024 (ended May 2023), data center revenue totaled $4.3 billion. One year later it was $23 billion.
Nvidia's data center revenue gets the headlines because that's where its AI-related chip revenue is recognized. However, Nvidia is a well-diversified business, with chips that have applications for gaming, automobiles, and professional visualization. The growth in data centers will eventually slow, but Nvidia has other use cases for its chips that should help sustain revenue.
The stock's P/E multiple of 72 is expensive but has come down considerably over the past year. If the growth seen over the latest several quarters continues, investors could still come out ahead even from today's lofty valuation . That said, this would be a wonderful company to grab shares of when the market takes a turn for the worse.
ASML
None of the growth that Broadcom and Nvidia have seen is possible without Dutch lithography company ASML (NASDAQ: ASML) . Lithography is the process of etching patterns onto the silicone used in semiconductors. For the most cutting-edge chips, extreme ultraviolet lithography (EUV) is necessary and ASML is the only company in the world that makes the machines needed for this advanced process.
Considering all the AI hype in the markets, it might come as a surprise that the semiconductor industry is in a cyclical decline right now. This has been clear in ASML's recent results. In Q2 of 2024, revenue declined 10% year over year, following a 21% decline in the previous quarter. ASML's management has stated this has everything to do with the cyclical nature of the industry. It expects the remainder of the year to be a challenge but forecasts a return to growth in 2025.
Despite the struggles the company has seen lately, the market is certainly bullish on the future. ASML's valuation has steadily risen over the last year and shares now trade for a P/E of 51. If there's any signs of weakness in AI demand, this could be a stock that sells off. Whenever shares go on sale, investors would be wise to pay attention.
Jeff Santoro has positions in ASML, Broadcom, and Nvidia. The Motley Fool has positions in and recommends ASML and Nvidia. The Motley Fool recommends Broadcom. The Motley Fool has a disclosure policy .
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