Technological innovation has been one of the biggest catalysts for stock market growth over the past century, and that's unlikely to change any time soon. For investors who bet on the right companies and allow growth trends and competitive victories to compound over the long term, incredible returns are possible.
With that in mind, read on to see why two Motley Fool contributors think buying these two stocks now, while they're still significantly below their prior highs, seems like a good move.
Nvidia stock is a good buy after taking a breather
Keith Noonan: Nvidia (NASDAQ: NVDA) is the company behind the advanced graphics processing units (GPUs) that are at the heart of the artificial intelligence (AI) revolution. It is also the most influential and most intensely monitored stock in the market.
Even after a 14% pullback from an all-time high hit in June, the company's stock is still up roughly 136% in 2024. Driven by incredible demand from large data center customers, including Microsoft and Target platformsNvidia's sales and profit growth has been incredible, but some investors are also wondering how long the company can maintain its stellar sales and margin momentum.
With a market capitalization of approximately $2.86 trillion at the time of writing, Nvidia’s valuation has skyrocketed by over 2,480% over the past five years and ranks as the third most valuable company in the world. There should be no doubt that this is a high-risk stock, but I also think it remains a company worth owning for long-term investors.
In the second quarter, Nvidia posted a gross margin of 75.1%, down from the record 78.4% margin it posted in the first quarter. The company also estimated that the gross margin for the current quarter would be around 74.5%. The company continues to post fantastic margins, but it is not unreasonable to think that the company's gross margin may have peaked by now. On the other hand, Nvidia's outlook remains very promising.
After increasing sales 122% year-over-year in the second quarter, Nvidia expects third-quarter sales to increase 79% compared to the third quarter of 2023. It also has a significant performance catalyst on track to begin contributing in the fourth quarter and then be an even bigger performance driver in the next fiscal year.
Nvidia is set to launch its next-generation Blackwell chips in the fourth quarter of this year, and the hardware is poised to deliver significant AI performance improvements and huge revenue gains for Nvidia. CEO Jensen Huang has said he expects the Blackwell processors to be the company’s most successful products yet.
While Nvidia could price its Blackwell processors at levels that significantly boost gross margins, it doesn’t necessarily have to go that route. The company is crushing competition in the market for advanced GPUs and AI accelerators, and a relatively small sacrifice on the margin front could help it secure advantages that underpin its long-term positioning in today’s most important technology trend.
For long-term investors looking for ways to capitalize on AI trends, Nvidia stock remains a valuable addition to their portfolio.
Cognex's falling share price is an ideal buying opportunity
Lee Samaha: There is no way to sugarcoat the situation; machine vision company Cognex's (NASDAQ: CGNX) End markets are struggling in 2024. Still, much of that trouble is already reflected in the stock price (which is down 60% from its all-time high). But long-term investors don't buy stocks for a few quarters' worth of earnings, but for their long-term earnings potential.
Cognex and its machine vision solutions continue to have significant growth opportunities. Using automated machine vision in manufacturing or logistics (such as e-commerce order fulfillment) helps improve quality, consistency, efficiency, costs, and safety. It also creates digital insights that are used in data analysis to improve processes.
Management expects its end markets to grow at a rate of 13% annually over the next several years, with Cognex slightly outperforming its markets by 15% annually.
In the short term, Cognex is dedicated to a reduction in growth expectations in two of its three key markets: automotive and consumer electronics. Higher interest rates in recent years reduced expectations for automotive sales this year, including for electric vehicles (EVs), and Cognex technology is used in the production of batteries for EVs. Relatively high interest rates also challenged consumer discretionary spending (for example, on smartphones, where Cognex machine vision helps overlay the displays).
The result is a dimming growth outlook for 2024. Since the company tends to report larger orders in the spring and summer (as its customers prepare to ramp up production in the fourth quarter), Cognex is unlikely to see much positive news flow on orders before spring 2025.
These trends won’t last forever, however, and a lower interest rate environment in 2025 could spur a release of pent-up investment spending in the automotive and consumer electronics sectors. Meanwhile, Cognex’s logistics end market is already in recovery mode. That suggests the weakness in the share price offers an ideal buying opportunity for a company with an excellent track record of growth.
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Randi Zuckerberg, former director of market development and spokesperson for Facebook and sister of Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Keith Noonan has no position in any of the stocks mentioned. Lee Samaha has no positions in any of the stocks mentioned. The Motley Fool has positions in and recommends Cognex, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: January 2026 $395 call options on Microsoft and January 2026 $405 call options on Microsoft. The Motley Fool has a Disclosure Policy.
The Bull Market Is Here: Two Incredibly Innovative Growth Stocks on 14% and 59% Drops to Buy Right Now Originally published by The Motley Fool
