For a group that led the market out of the March 2020 crash, mega caps sure haven’t pulled their weight lately.
With growth-oriented technology and consumer names bearing the brunt of this year’s downturn, the impact on capitalization weighted indices has been apparent.
Take the S&P 500 for example, where the largest six stocks are each down at least 20% year-to-date while the index is down approximately 18% overall. Tech companies like Apple, Microsoft, Alphabet, and Meta Platforms have uncharacteristically underperformed. Ditto for consumer discretionary companies Amazon and Tesla.
Since the closely followed benchmarks live and die by their biggest constituents, mega-cap names will likely need to mount a comeback for the market to have any chance of finishing higher by year-end.
Over the longer term, this stout six-pack and its $200 billion-plus sidekicks all have their investment merits. But in the near term, some appear to be closer to the bottom than others. Don’t wait too long to jump on these three mega pullbacks.
Is the NVIDIA Downturn a Buy Opportunity?
NVIDIA Corporation (NASDAQ: NVDA) is trading more than 50% off its November 2021 peak. It is a stunning reversal for a company on the cutting edge of some of the world’s most promising technologies—and a glorious opportunity to start or add to a position.
The founder-led company’s long-term growth potential remains outstanding. It has exposure to four large, growing end markets—automotive, data centers, gaming, and professional visualization. Three powerful NVIDIA platforms focused on high power computing (HPC), artificial intelligence (AI), and Omniverse will continue to drive innovation for years to come.
Together, NVIDIA’s full-stack technology is positioned to serve industries valued at $1 trillion. More than 3 million developers across the globe are using the platform to create new software. Dozens of blue-chip companies rely on NVIDIA connectivity solutions to power their data centers such as Pepsi, Salesforce, and T-Mobile.
The stock’s downturn has been all about a valuation reset rather than a flaw in the fundamentals. In fact, the growth story has only been solidified since the start of the year after NVIDIA launched groundbreaking products for AI infrastructure and deep learning. As these and other growth prospects play out, the stock’s valuation will be reset. Upward.
Will Amazon.com Stock Recover?
Less than a year removed from reaching the $3,700 level, Amazon.com, Inc. (NASDAQ: AMZN) is flirting with a sub-$2,000 price that would bring it back to where it was at the start of the pandemic. This would also effectively wipe away the credit the stock received for the hyper online shopping activity caused by Covid-19.
If the e-commerce giant does slip below $2,000, it will likely be an important psychological milestone that sparks renewed interest in a stock that is facing its first down year since 2014. Yes, the big first-quarter loss was disappointing as was the current quarter outlook. Higher wages and shipping costs are impacting most businesses these days. But they are temporary challenges that Amazon will work through and emerge just fine.
The Amazon brand remains synonymous with online shopping as Google is akin to online search. The company captured even more market share during the pandemic and is still the go-to website for American households. After doubling the size of its fulfillment network to keep up with demand, Amazon is entering a new phase of identifying cost efficiencies and productivity gains. It is a good situation to be in when sales are still growing from crazy levels of 2021.
Investors should also be encouraged by Amazon’s cloud computing business, which is the global leader and very profitable. AWS revenue grew twice as fast as Amazon’s e-commerce revenue and increased operating profits 57% to record levels in Q1.
Eventually, the e-commerce business will recover and Amazon will again have two fast-growing profitable businesses running. Investors that buy into the weakness can set themselves up some Prime returns.
Will Tesla Stock Get Back to $1,000?
Tesla, Inc. (NASDAQ: TSLA) has seen its share price nearly cut in half since November. It is a valuation adjustment that was probably well overdue and one that some argue should continue.
However, like its fearless CEO, Tesla is a different animal. The valuation is almost irrelevant given the well choreographed growth trajectory and immense investor interest in the stock.
Lately, Tesla’s downturn has been as much about Elon Musk’s Twitter circus, which seemingly has more encore performances ahead. Whether its conclusion amounts to an impressive grand finale or a major bust, it will eventually fade from the headlines. This will allow the market to refocus on the powerful growth story that was on display during the first quarter update.
Valuation reasons aside, it is stunning that the selloff has persisted as it has on the heels of an electrifying Q1 report. Profits more than tripled driven by sharp increases in EV production and deliveries. Margins actually expanded when most companies saw margins deteriorate significantly in this inflationary period.
Tesla is a risky buy here because the stock is prone to move on factors other than fundamentals – like Tweets. Truth is, the fundamentals are strong which is what you want to see as a long-term investor. Ignore the noise. Not far down the road, this will be a $1,000 stock again.
Tesla is a part of the Entrepreneur Index, which tracks some of the largest publicly traded companies founded and run by entrepreneurs.