Three Resilient Growth Shares to Acquire Despite a Potential Stock Market Dive in 2025
Buying growth stocks during a potential stock market sell-off might appear to go against the grain. After all, why invest in stocks only to see them decrease in value? However, long-term investing is not about market timing. Instead, the focus is on identifying businesses that can increase earnings gradually and reward persistent shareholders.
Here's why Meta Platforms (META), Advanced Micro Devices (AMD), and Adobe (ADBE) stand out as strong growth stocks to purchase in 2025, even if there's a widespread sell-off.
1. Meta Platforms
While Nvidia often gets the limelight for driving the AI-powered growth stock rally, it's high time to highlight Meta Platforms. With a share price hovering around $600, it's deserving of recognition.
In October 2022, Meta experienced a dip in share price, falling below $90, due to investor criticism of the company's spending on the metaverse and research and development projects through its Reality Labs segment. The potential threat of TikTok also weighed on Meta, which was yet to perfect Instagram Reels. In a relatively short span of time, Meta leveraged AI and improved Instagram's effectiveness as a platform for content consumption and targeted ads.
Meta has utilized AI to boost engagement and expand the scope of ad campaigns through advanced metrics tracking. The stock is currently priced reasonably, making it an attractive buy, considering its market valuation has more than doubled since that October low.
Meta's simple yet effective business model revolves around its Family of Apps - Facebook, Instagram, and WhatsApp - which have become highly valuable digital real estate for advertisers. It employs a strategy similar to Alphabet for Google and YouTube, allowing users to create content, and then profiting from engagement instead of investing in content creation.
Instagram's transition from stand-alone images to scrolling short-form videos has significantly boosted Meta's cash flow and margins. As you can see in the following chart, Meta is generating strong operating margins and converting about a third of revenue into free cash flow.
Meta boasts a forward price-to-earnings (P/E) ratio of 26.5, which isn't unusually cheap. However, it is quite reasonable compared to other megacap tech-focused companies. For instance, Apple, Microsoft, Nvidia, Amazon, Tesla, Broadcom, and Netflix all have higher forward P/Es than Meta.
In total, Meta appears as a well-balanced mix of growth and value for 2025. In fact, I anticipate the company to eventually surpass both Alphabet and Amazon in value.
2. AMD
AMD enjoyed a significant surge in 2023, rising by 128%, making it one of the best-performing stocks in the S&P 500 that year. AMD continued to thrive into 2024, reaching an all-time intra-day high of $227.30 per share in March. However, it subsequently experienced a sell-off and has lost over 15% year to date as of this writing, hovering near a 52-week low. This downward trend is particularly noticeable considering the broader tech sector is up over 23% year to date, with chip stocks like Nvidia and Broadcom posting impressive gains in 2024.
The primary reason for AMD's underperformance in the sector is its yet-to-materialize returns from AI investments. The company's revenue has remained stagnant, but it continues to spend heavily on R&D. For the trailing-12-month period, AMD earned $24.3 billion in revenue but spent over $0.25 on the dollar of that revenue on R&D. Despite this, AMD operates on a thin margin, which is mainly due to the timing of its product development.
AMD's origins are in the central processing unit (CPU) market, not in graphics processing units (GPUs), which are Nvidia's primary focus in data centers. However, AMD has new lines of GPUs slated for release in 2025 and 2026 that could provide more cost-effective GPU alternatives for major AI customers like Microsoft and Meta.
AMD's stellar performance in 2023 was driven by hype and its potential to carve out a share of Nvidia's GPU market. AMD has invested heavily, hoping its more budget-friendly GPUs could appeal to big-spending AI clients. Nevertheless, AMD remains a highly speculative investment opportunity. Its plans could be derailed by competition or unfavorable market conditions. If there's a wider downturn in AI capital investment, it could impact AMD's orders.
Although it appears inexpensive given its current downturn compared to other chip stocks, AMD is still quite expensive from an earnings perspective. However, there are reasons to believe that AMD could grow into its valuation in the long term. Analyst consensus estimates predict $5.13 in 2025 earnings per share, which would give AMD a P/E ratio of just 24.4 based on the current price.
AMD is an intriguing prospect for investors who believe in sustained AI investment and are prepared to tolerate the potential for increased volatility due to AMD's product launch timeline.
Adobe continues to show robust sales and earnings expansion, preserving strong profit margins. Adobe maintains an unshakeable financial structure, generating lots of funds to repurchase shares and boost EPS expansion. However, the primary apprehensions don't stem from Adobe's current position, but speculations about its future trajectory.
Adobe lacks a specific strategy to capitalize on AI revenue opportunities to the same extent as enterprise software colossus Salesforce, which has a distinct plan for using and benefiting from AI. Adobe has rolled out various new AI-centric tools, enhancing its legacy software offerings in its Creative Cloud suite, from Acrobat to generative AI through Adobe Firefly. Nonetheless, Adobe hasn't clarified its strategy on how it will monetize these new tools.
Adobe was one of the trailblazers in the software-as-a-service (SaaS) business model. The strategy revolves around combining and refining software offerings over time to warrant higher prices. One would assume that AI would be Adobe's ticket to enabling customers to achieve even more with a subscription, but that might not materialize if it leads to less overall subscription licensing. Essentially, efficiency improvements may potentially undermine the very foundation of Adobe's business model. Additionally, there's the danger of AI-driven graphic design tools from competitors dismantling Adobe's offerings or slashing prices so drastically that Adobe loses clients.
Adobe needs to assert itself as a leader in AI for graphic design. The stock is likely to remain under pressure until it assures investors of its capacity to adapt to shifting trends. The silver lining is that Adobe comes at a discount – boasting a forward P/E ratio of merely 21.9. Adobe is an enticing deep value proposition in the enterprise software sector, but strictly for those confident in the company's prowess in creating and exploiting AI tools.
- In terms of finance and investing, Meta Platforms' (META) current share price of around $600 in October 2022, despite a dip due to investor concerns, makes it an attractive growth stock to consider for 2025, given its increased earnings potential and strong focus on AI and digital advertising.
- Advanced Micro Devices (AMD) saw significant growth in 2023, but its underperformance in 2024 prompted a sell-off. However, with potential upcoming releases of cost-effective GPUs and continued investments in AI technology, AMD remains a speculative yet potentially rewarding growth stock option for long-term investors.
