Buying growth stocks into a potential stock market sell-off may seem counterintuitive. After all, who wants to load up on stocks only to see them fall? But long-term investing isn't about timing the market. Rather, the goal is to identify companies that can grow earnings over time and reward patient shareholders.
Here's why Meta Platforms (META 1.16%), Advanced Micro Devices (AMD -0.88%), and Adobe (ADBE -0.41%) stand out as excellent growth stocks to buy in 2025 even if there is a broader sell-off.
Image source: Getty Images.
1. Meta Platforms
Nvidia gets a lot of credit for being the face of the artificial intelligence (AI)-fueled rally in growth stocks. But with Meta Platforms hovering around $600 a share, it's time to give credit where credit is due.
In October 2022, Meta fell below $90 a share as investors criticized the company's spending on the metaverse and research and development projects through its Reality Labs segment. The threat of TikTok also weighed heavily on Meta, which had yet to perfect Instagram Reels. But in a relatively short amount of time, Meta leveraged AI and made Instagram a highly effective platform for content consumption and for targeted ads.
Meta has used AI to boost engagement and improve the scope of ad campaigns with sophisticated metrics tracking. So despite increasing by over sixfold from that October low, Meta is still very reasonably priced heading into 2025, making it a compelling buy.
Meta has a simple yet highly effective business model. Its Family of Apps -- Facebook, Instagram, and WhatsApp -- have become highly valuable digital real estate for advertisers. It's similar to the strategy Alphabet deploys for Google and YouTube. Instead of funding capital-intensive content creation, Meta lets users create content and then profits from engagement.
Instagram's transition from stand-alone images in gallery format to scrolling short-form videos has been a game changer for 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 Revenue (TTM) data by YCharts
Meta has a forward price-to-earnings (P/E) ratio of 26.5, which isn't dirt cheap. But it is fairly reasonable compared to other megacap tech-focused companies. Consider that Apple, Microsoft, Nvidia, Amazon, Tesla, Broadcom, and Netflix all have higher forward P/Es than Meta.
Add it all up, and Meta stands out as a nice balance of growth and value for 2025. In fact, I expect the company to eventually become more valuable than both Alphabet and Amazon.
2. AMD
AMD skyrocketed 128% in 2023 -- making it one of the best-performing stocks in the S&P 500 that year. Initially, AMD carried that momentum forward in 2024, hitting an all-time intra-day high of $227.30 per share in March. But AMD gave up all those gains and then some and is down over 15% year to date at the time of this writing, and is hovering around a 52-week low. The sell-off looks especially bad considering the broader tech sector is up over 23% year to date, and chip stocks like Nvidia and Broadcom have put up monster gains in 2024.
The simplest reason why AMD is underperforming in the sector is that its AI investments have yet to pay off. The company's revenue has flatlined, yet it continues to spend a considerable amount 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. The company is making a very low margin right now, but again, this is mostly because of the timing of its product development.
AMD's roots are in the central processing unit (CPU) market, not in graphics processing units (GPUs), which are Nvidia's bread and butter for data centers. However, AMD has new lines of GPUs scheduled for release in 2025 and 2026 that could offer more affordable GPU alternatives for big-time Nvidia customers like Microsoft and Meta.
AMD's rise in 2023 was built around hype and its potential to pierce Nvidia's market share in the GPU market. AMD has spent a lot of money hoping that its more cost-effective GPUs can win the budgets of big AI spenders. However, AMD remains a highly speculative investment opportunity. Its plans could get derailed due to competition or bad timing in the business cycle. If there's a broader downturn in AI capital investment, it could impact AMD's orders.
The stock may look cheap because it's down while so many chip stocks are up, but from an earnings perspective, it is actually still pretty expensive. Still, there are reasons to believe AMD could grow into its valuation in time. Analyst consensus estimates call for $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 worth a closer look for investors who believe in sustained capital investment in AI and are willing to endure the possibility of more volatility with AMD's product launch timeline.
3. Adobe
Like AMD, Adobe had a phenomenal 2023, gaining over 77%. But it has been one of the worst-performing megacap tech stocks in 2024 -- down over 25% year to date.
Adobe continues to deliver fairly decent sales and earnings growth while maintaining solid margins. Adobe maintains a rock-solid balance sheet and generates plenty of cash to buy back stock and accelerate EPS growth. The issue isn't so much where Adobe is, but fears over where it could be headed.
The company doesn't have a defined way to monetize AI to the same degree as fellow enterprise software giant Salesforce -- which has a clear roadmap for leveraging and profiting from AI. Adobe has developed several new AI-focused tools that enhance legacy software offerings in its Creative Cloud suite, from Acrobat to generative AI through Adobe Firefly. But Adobe has yet to convey how exactly it will monetize these new tools.
Adobe was a pioneer in the software-as-a-service business model. The idea is to bundle and improve software offerings over time to justify price increases. You would think AI would be the golden ticket for Adobe to allow its customers to do even more with a subscription, but not if it means companies will license fewer overall subscriptions. In other words, efficiency improvements could disrupt the very fabric of Adobe's business model. There's also the threat of rival AI-powered graphic design tools disrupting Adobe's offering or undercutting its prices to the point where Adobe loses customers.
Adobe must find a way to be a clear leader in AI for graphic design. The stock will likely remain pressured until it convinces the market that it can evolve with the times. The good news is Adobe is cheap -- sporting a forward P/E ratio of just 21.9. Adobe is a compelling deep value play in enterprise software, but only for folks confident in the company's ability to develop and profit from AI tools.
