The stock market is having a rough 2022 so far, and things could get worse if there is a recession. analysts in german bank estimates that US stocks could fall another 25% in value if a recession is declared.
In such a scenario, tech stocks would face even more pressure than they already do. the Nasdaq-100 Technology Sector the index is down nearly 30% so far in 2022 and would likely fall much further in the event of a recession. Evercore ISI analyst Amit Daryanani notes there could be more weakness in tech stocks considering how they performed in the Great Recession of 2008-09.
However, from a long-term investor’s perspective, certain technology stocks have the potential to be great buys in a recession given their strong long-term prospects. Amazon (AMZN 2.39%) Y Taiwan Semiconductor Manufacturing (MST 0.76%), popularly known as TSMC, are two of those tech companies that investors may want to buy if a recession hits and share prices drop further. Let’s see why.
E-commerce and cloud giant Amazon’s revenue grew by leaps and bounds in the years after the Great Recession. Amazon reported $24.5 billion in revenue in 2009. Last year, the company reported nearly $470 billion in revenue. That suggests a big bounce.
This incredible growth at Amazon was fueled by the growing adoption of e-commerce around the world, the company’s dominant position in major e-commerce markets, as well as its leadership in the fast-growing cloud computing market. The good news is that the e-commerce and cloud computing markets will continue to be important catalysts for Amazon in the long run and provide a good boost to the company’s bottom line.
For example, the global e-commerce market is forecast to post 27% annual growth over the next five years, reaching $55 billion in revenue in 2027 compared to $13 billion in 2022. Amazon controlled 13% of the share. in the eCommerce market in 2020, which puts it in a good position to record incremental revenue growth just because of the secular opportunity it is in. Also consider that global e-commerce revenue alone totaled $550 billion in 2010.
Beyond e-commerce, the cloud services space will be another long-term growth driver for Amazon. This is because Amazon Web Services leads the cloud services market with a 34% market share, according to Synergy Research Group. Trailing 12-month revenue from the cloud services market stood at $200 billion at the end of the second quarter. The global cloud computing market could reach $750 billion in revenue by 2027, growing at an annual rate of 30% over the next five years. This presents another great opportunity for Amazon to grow its business substantially in the years to come.
Not surprisingly, analysts expect the company’s gross revenue to grow steadily for years to come. Analysts forecast 33% annual earnings growth at Amazon over the next five years.
Amazon’s stock price is down 19% so far in 2022. Further weakness in the company’s stock price related to news of a recession could give investors a better entry point into stocks. Amazon stock. That’s an opportunity savvy investors won’t want to pass up given the company’s sustained ability to deliver impressive growth.
2. Taiwan Semiconductor Manufacturing
TSMC is another tech giant that has come a long way since the previous recession. The semiconductor benchmark reported $9 billion in revenue in fiscal 2009. It ended fiscal 2021 with revenue of nearly $57 billion.
The company’s incredible growth is no surprise: TSMC is the world’s largest semiconductor foundry. In the first quarter of 2022, TSMC controlled 53% of the global semiconductor foundry space, well above No. 2 Samsung16% stake. The Taiwan-based company makes chips for the world’s leading chipmakers and has an impressive list of customers.
TSMC benefited greatly from the rapid growth of the semiconductor market over the years. The global semiconductor market generated $195 billion in revenue in 2009, according to Gartner. That figure rose to $595 billion last year. By 2030, global semiconductor revenue is forecast to hit $1 trillion, according to McKinsey, indicating the market is expected to add the next $400 billion in annual revenue at a much faster rate.
This should pave the way for impressive growth at TSMC. In fact, the company reported solid growth so far this year. TSMC reported a whopping 59% year-over-year increase in revenue in August 2022. The company’s revenue rose 43.5% year-over-year in the first eight months of 2022. It is expected to end the year with a 31% increase in revenue to nearly $75 billion. Even better, analysts expect a 23% annual earnings growth rate for TSMC over the next five years.
All of this indicates that TSMC is an obvious semiconductor stock to buy following its 31.7% price drop so far in 2022. The company is trading at 17 times trailing earnings and 14 times future earnings. Both numbers are lower than his five-year average ending earnings multiple of 23 and future earnings multiple of 21.
So investors can get their hands on TSMC stock at a much cheaper valuation in the event of a downturn, and should consider capitalizing on this opportunity as this tech giant looks built for long-term upside.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. chauhan hard has no position in any of the mentioned stocks. The Motley Fool has positions and recommends Amazon and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.