A stock market sell-off over the last 12 months highlights the importance of investing with a long-term perspective. Doing so can help safeguard your investment from what often turn out to be temporary economic declines. Numerous stocks got dragged down over the course of the year, in large part, because inflation reached levels not seen in 40-plus years and interest rates rose in an effort to get that outsized inflation back under control. Investors who bought reliable growth stocks with plans to not sell for several years saw their stocks dip in price, but are less worried because they had no intention of selling those stocks this year.
Two of these reliable growth stocks, Microsoft (NASDAQ: MSFT) and Advanced Micro Devices (NASDAQ: AMD), have seen price dips along with many other strong stocks this year. Here's why these two growth stocks are at the top of my list as we head into 2023.
Microsoft
This steady growth stock is up in value by roughly 180% in the last five years despite slipping 28.5% so far in 2022. The company's growth is primarily thanks to operating business segments with considerable market share in multiple quickly growing industries. With mega-popular brands such as Windows, Office, Xbox, Azure, and LinkedIn, Microsoft has what it takes to continue expanding its businesses in 2023 and beyond.
Grand View Research projects the $369 billion cloud computing market will generate a compound annual growth rate of 15.7% until at least 2030. Meanwhile, Microsoft's cloud platform Azure holds a 21% market share in the industry, second only to Amazon Web Services' 34% share. Microsoft's intelligent cloud segment is the fastest-growing part of its business in recent years. In Q1 of fiscal 2023, the segment's revenue increased 20% year over year to $20.3 billion, while operating income rose 17% to $8.9 billion. Microsoft is already significantly benefiting from the market's growth, and it has plans to expand further in the industry by building more data centers in growth markets like Asia and other regions in 2023.
Additionally, Microsoft's acquisition of digital advertising star Xandr in 2021 could pay off in a big way next year, thanks to its recent partnership with Netflix. The Windows company has signed up to be the exclusive ads supplier on Netflix's ad-supported streaming tier, which launched in November. The coming year will provide more time for Microsoft to start seeing gains from the partnership as it participates in the digital advertising market, expected to reach a value of $786.2 billion by 2026.
Microsoft is only just getting started in a digital ad industry dominated by the likes of Alphabet and Meta Platforms. However, the company has a history of entering new markets and gradually gaining dominance. And with free cash flow of $63.33 billion as of Sept. 30, Microsoft is well equipped to continue investing in and expanding its many businesses in 2023.
Advanced Micro Devices
The PC industry suffered steep declines in consumer spending in 2022. According to IDC, worldwide PC shipments declined 15% in the third quarter of 2022 as the rising cost of living slashed discretionary spending. As a major player in the industry, AMD's stock is down about 54.6% year to date. However, it remains one of my favorite growth stocks for 2023, as its shares are up almost 500% in the last five years despite a sell-off this year.
While AMD is best known for its graphics cards (GPUs) and gaming PC components, the company also has lucrative businesses in console gaming and data centers. In fact, in Q3 2022, AMD's data centers made up the largest portion of revenue, with the segment earning $1.6 billion and rising 45% year over year. As the cloud computing market continues to flourish, data centers are reaping the rewards, and so is AMD.
Moreover, the quarter reported a 13.7% growth in its gaming revenue, hitting $1.63 billion. Despite the GPU market suffering declines in the last year, AMD continued to see growth in the segment thanks to its crucial role in game consoles. AMD exclusively provides the graphics and processing power of two of the world's best-selling game consoles: Microsoft's Xbox Series X|S and Sony's PlayStation 5. Considering Sony and Microsoft are expected to release beefier versions of their consoles as early as 2023, AMD is well-positioned to continue growing its console revenue.
Tech companies were hit particularly hard in 2022, with AMD shares left battered and beaten. However, the diversity of its business and its presence in other well-performing industries have helped it continue to grow regardless. The company will likely continue seeing significant gains from data centers and console sales in 2023, and if consumer demand returns in the PC market, AMD's stock will only become more attractive.
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John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Dani Cook has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Alphabet, Amazon.com, Meta Platforms, Microsoft, and Netflix. The Motley Fool has a disclosure policy.
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