The Nasdaq Composite (NASDAQINDEX: ^IXIC) recently entered a bear market, which means the technology-focused index has tumbled more than 20% from its record high. But most Wall Street analysts see the decline as an opportunity to buy shares of Arm Holdings (NASDAQ: ARM) and The Trade Desk (NASDAQ: TTD).
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Arm stock has fallen 53% from its high, partially because investors were disappointed with the guidance management provided in the latest quarter. But among the 41 analysts that follow the company, the median target price is $177.50 per share. That implies 106% upside from the current share price of $86.
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The Trade Desk stock has fallen 67% from its high, partially because the company reported disappointing financial results in the latest quarter. But among the 39 analysts that follow the company, the median target price is $103 per share. That implies 124% upside from the current share price of $46.
Here's what investors should know about Arm and The Trade Desk.
Arm develops and licenses central processing unit (CPU) architectures and subsystems to companies that develop custom chips. Its processors are widely used in mobile devices, especially smartphones, but Arm's technology is also gaining market share in data centers. The major public clouds -- operated by Amazon, Microsoft, and Alphabet's Google -- have all deployed Arm-based chips.
Importantly, Arm architectures are more power efficient than x86 architectures from Intel and AMD. That key advantage, coupled with the flexibility the company affords clients in designing custom chips, are the reasons for its dominance in smartphone processors and its growing importance in data center chips, particularly with power-intensive workloads like artificial intelligence (AI).
Arm reported solid financial results in the December quarter. Revenue increased 19% to $983 million due to strong growth in royalties, which are based on the quantity of shipped products containing Arm technology. Adoption of Armv9 (the latest CPU architecture) and compute subsystems (other essential components for chip design) contributed. Meanwhile, non-GAAP (generally accepted accounting principles) net income increased 26% to $0.39 per diluted share.
However, the stock tumbled after the report because Arm narrowed its full-year guidance despite beating Wall Street's estimates in the third quarter. Investors were disappointed that the announcement did not give a more upbeat outlook. But Arm is still well positioned to maintain its momentum as AI drives demand for power-efficient data center CPUs.
Indeed, the Stargate Project plans to spend $500 billion over the next four years to build AI infrastructure in the U.S. for OpenAI, and Arm is listed as a key technology partner because Nvidia Grace CPUs are built on its intellectual property.
Wall Street expects Arm's earnings to increase 32% annually through fiscal 2026, which ends in March 2026. That consensus estimate makes the current valuation of 62 times earnings look reasonable, especially when Arm has reported above-consensus results for six consecutive quarters. Investors should feel comfortable buying a small position today.
The Trade Desk operates the largest independent demand-side platform (DSP), software that helps clients automate, optimize, and measure advertising campaigns across digital channels. It was among the first adtech companies to incorporate artificial intelligence into its DSP, and CEO Jeff Green says it still has "the most advanced data-driven decision-making platform" in the industry.
The Trade Desk reported disappointing fourth-quarter financial results, falling short of its own sales guidance for the first time in 33 quarters. Revenue rose 22% to $741 million, well below the $756 million management anticipated. Non-GAAP earnings increased 44% to $0.59 per diluted share. Green blamed the revenue shortfall on a "series of small execution missteps," and outlined what the company is taking to fix the issues.
Wall Street expects The Trade Desk's earnings to grow at 14% annually through 2026. That makes the current valuation of 27 times earnings seem reasonable, but I still think the consensus is too low. I say that for two reasons.
First, adtech spending is forecast to grow at 14% annually through 2030, so The Trade Desk is likely to grow faster, provided it keeps gaining market share. Second, Wall Street has consistently underestimated the company. The Trade Desk topped the consensus earnings estimate by an average of 10% during the last four quarters.
If that pattern continues, the current share price would look rather cheap in hindsight. Investors with a time horizon of at least three years should feel comfortable buying a position now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Trevor Jennewine has positions in Amazon, Nvidia, and The Trade Desk. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon, Intel, Microsoft, Nvidia, and The Trade Desk. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft, short January 2026 $405 calls on Microsoft, and short May 2025 $30 calls on Intel. The Motley Fool has a disclosure policy.
Nasdaq Bear Market: 2 Brilliant Stocks Down 53% and 67% to Buy Before They Double, According to Wall Street was originally published by The Motley Fool
