The tech sector players hold the potential for considerable growth.
An investment budget of $2,000 may sound relatively modest when some stocks trade at higher prices per share than that. Nonetheless, many people have started their investing journeys with less, and whatever sum you’re beginning with, the goal is, of course, to turn it into substantially more.
If you’re looking for stocks with the potential to double at a relatively rapid pace, the tech sector is a good place to focus your search. These two tech stocks could make even a modest investor significantly wealthier over time.
1. AMD
Advanced Micro Devices (AMD -0.36%) may not appear well-positioned to double at first glance. The semiconductor stock has lagged behind market leader Nvidia in the artificial intelligence (AI) chip space, and its revenue growth indicates that its gaming and embedded segments are also struggling.
Now, however, AMD is pushing full speed ahead into the AI accelerator market. While it sells merchant AI accelerators and added some new releases in this category recently, it has pivoted heavily into custom AI chips.
Moreover, the market is likely overlooking one key factor in its valuation of AMD: how AI chips have transformed chip companies. Three years ago, Nvidia’s data center business (which includes its AI chips) was not its largest segment. Now, it makes up 88% of its revenue.
AMD could soon follow that path. In the second quarter, its revenue rose by only 9% yearly to $5.8 billion. That was far below the triple-digit percentage growth of Nvidia’s top line.
However, AMD’s data center revenue grew by 115% to $2.8 billion. Consequently, the data center segment is now its largest, accounting for 48% of company revenues. Assuming that trend continues, its total revenue should continue to grow even if other segments lag.
AMD’s net income is also on the path to recovery. It reached $265 million in Q2, up from just $27 million in the prior-year period.
It still has a high P/E ratio, but its price-to-sales (P/S) ratio is only 11. Not only is that far under Nvidia’s P/S ratio of 30, but it will appear really cheap as its AI chip business grows to the point that it becomes the company’s dominant source of revenue. Once that occurs, a doubling of the stock price could be just the beginning.
2. Sea Limited
In the case of Sea Limited (SE -1.58%) stock, doubling one’s investment could be as simple as capitalizing on a comeback. Its e-commerce arm, Shopee, has become the largest e-commerce player in Southeast Asia.
However, like Amazon, Sea is a conglomerate. Its Garena unit is prominent in online gaming, and its fintech arm, Sea Money, has grown rapidly even when other parts of the company struggled.
Investors soured on Sea Limited stock after its most popular game, Free Fire, got banned in India. Also, its attempts to expand its e-commerce business into Europe and Latin America hurt investor sentiment due to its lack of a competitive moat in those regions.
The company has since corrected its course. It shuttered its non-Asian e-commerce operations outside of Brazil, and invested in logistics in its Asian markets to widen its competitive moat. It is also working with India’s government to regain approval to offer Free Fire in that country.
During the second quarter, its revenue grew by 23% year over year to $3.8 billion. That was a significant improvement over the single-digit percentage growth it had delivered in previous quarters.
Despite that, its net income fell to $80 million from $331 million in the year-ago period. The main reason was a 57% increase in sales and marketing expenses.
Still, that spending is the company investing in itself, which should boost the bottom line in the long term. Also, investors do not seem concerned with those rising costs, as the stock has doubled in value over the last year.
The earnings multiple indicates it could double again. Even as its falling earnings spiked Sea’s trailing P/E ratio, its forward P/E ratio is 42, barely above the much larger Amazon, which trades at 39 times earnings. Such a valuation should continue to attract investors as Sea Limited solidifies its leadership in Southeast Asia and beyond.
John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Will Healy has positions in Advanced Micro Devices and Sea Limited. The Motley Fool has positions in and recommends Advanced Micro Devices, Amazon, Nvidia, and Sea Limited. The Motley Fool has a disclosure policy.
