Technology stocks were red hot in 2024. Fueled by demand for artificial intelligence (AI) and expectations that this incredible technological shift is still in the early stages of unfolding, mega-cap tech companies including Nvidia, Apple, MicrosoftAnd Palantir have soared to new valuation heights. These explosive gains have in turn led to incredible returns for the major indexes.
The S&P500 The index is up as much as 28% in this year’s trading. Meanwhile, it’s even more tech-heavy Nasdaq Composite The index has risen by 32% over the entire period. But even though there is a bull market and many high-profile companies are performing incredibly well, there are actually some great companies with explosive return potential that are well below previous highs.
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With these potential investment opportunities in mind, read on to see why two Fool.com contributors think buying these stocks right now would be a smart move.
Keith Noonan (ASML): Access to high-quality semiconductors has never been more important than it is now. For example, the chips that Nvidia designs for its advanced graphics processing units (GPUs) are the foundational hardware that powers the AI revolution. High-performance semiconductors are critical for data centers and cloud computing performance, and they are also critical for consumer-level computing devices.
And when it comes to producing chips that advance technology, almost no company on earth is more important ASML(NASDAQ: ASML).
ASML is the world’s leading supplier of lithography machines used for semiconductor manufacturing. When it comes to the extreme ultraviolet lithography (EUL) machines used to manufacture the world’s most advanced chips, the company is effectively the only player in the game.
ASML’s proprietary EUL technology makes it possible to print the world’s most advanced semiconductors with a level of accuracy that no other semiconductor equipment manufacturer can match.
But despite clear leadership in a market category that looks primed for strong demand trends, ASML shares have actually lost ground amid the huge run-up in AI stocks this year. The company’s share price is down 35% from its high.
So what’s behind the big pullback? Due to rising tensions between the US and China, ASML is facing restrictions that prevent the export of its advanced lithography machines to China. As a result of these pressures and some demand weakness in lower chip manufacturing markets, the company has lowered its near-term performance expectations.
But while the company’s results may show some unevenness due to geopolitical developments and cyclical trends in the semiconductor industry, ASML ranks as one of the world’s most important and influential companies. When it comes to the EUL machines that enable the production of advanced AI chips, there is no comparable alternative to the company’s offering.
Over the long term, I expect ASML’s clear technological advantage to lead to business performance that will push the stock to market-crushing returns.
Lee Samaha (Cognex): Machine vision equipment and solutions company Cognex(NASDAQ: CGNX) has a bright future. Although demand has declined in recent years due to a combination of temporary factors, the company’s long-term growth prospects remain undiminished. Meanwhile, the stock price is down about 60% from its lifetime high.
The temporary weakness reflects a cyclical slowdown in Cognex’s key end markets – automotive, consumer electronics and logistics (e-commerce warehousing) – as interest rate increases have limited consumer spending. That has led automakers and consumer electronics companies to cut back on investments in assembly lines and, in turn, the machine vision technology that helps optimize them.
In addition, e-commerce warehousing spending has been scaled back due to the slowdown in consumer spending and a natural correction to the pick-up in investment due to the pandemic.
That said, the underlying trends in machine vision demand remain in place. It is a complementary solution to automation investments that will help bring back production from countries with low labor costs. Furthermore, it is a technology whose benefits are magnified by the move towards digital manufacturing, as it helps monitor and control automated production more efficiently than humans can.
As such, machine vision adoption is only likely to increase in end markets that have traditionally been early adopters of automation (such as automakers) and is likely to spread to other industries that use automated assembly line production.
Management’s long-term target for annual growth is 15%, and when cyclical end markets turn around, it should be able to return to at least that rate.
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See 3 “Double Down” Stocks »
*Stock Advisor returns December 9, 2024
Keith Noonan has no position in any of the stocks mentioned. Lee Samaha has no position in any of the stocks mentioned. The Motley Fool holds positions in and recommends ASML, Apple, Cognex, Microsoft, Nvidia, and Palantir Technologies. The Motley Fool recommends the following options: long January 2026 $395 calls to Microsoft and short January 2026 $405 calls to Microsoft. The Motley Fool has a disclosure policy.
There’s a Bull Market: Two Smart Stocks Down 35% and 60% to Buy Now, originally published by The Motley Fool
