On Monday, August 5th, 2024, stocks experienced a sharp and significant decline, marking a notable point in the ongoing downward trend.
Reflecting this decline, the Dow Jones Industrial Average, a widely followed index of 30 large, publicly owned companies on the NYSE and Nasdaq, dropped almost 1,034 points, or 2.6%, to 38,703.27.
The Nasdaq Composites lost 3.43% and closed at 16,200.08, while the S&P 500 slid 3% to end at 5,186.33. More concerningly, the blue-chip Dow and S&P 500 recorded their biggest daily losses since September 2022.
The volatility affected markets everywhere. In the Far East, Japan’s stock market witnessed its worst drop since Wall Street’s Black Monday in 1987. Other asset classes also took a hit, as Bitcoin slid down to US$54,000 on Monday from US$62,000 on Friday.
STOXX 600 indices in Europe, which, along with DAX, comprise a global and comprehensive family of over 17,000 strictly rules-based and transparent indices, was off by 2.2%.
The CBOE volatility index went as high as 65, its greatest level since the early days of the world being hit with COVID-19. The US Treasury bonds witnessed a tumble as investors became keen to lodge into a global haven.
There were many reasons for this volatility. In the US, investors feared a recession and felt the pressure of the Federal Reserve lowering interest rates to encourage a global slowdown, while central banks aimed to keep rates as high as possible.
The market, including those in Asia, also reacted to the unfavorable July jobs report released on August 2nd, which showed that nonfarm payrolls grew by just 114,000 in July—below the downwardly revised 179,000 in June and the Dow Jones estimate of 185,000. The unemployment rate, edging higher to 4.3%, reached its highest point since October 2021.
A combination of all of these factors resulted in investors selling off mega-cap tech stocks, AI stocks, and more.
Amid this rush of investors withdrawing or holding back, many continued searching for stocks that could endure and thrive in the long run. In this context, we explore how market volatility can also present new opportunities and highlight three top stocks to watch after this week’s market dip.
On Monday, Netflix also witnessed a dip. As of Monday’s close, shares of the streaming firm had dropped 9.2% from the close of $690.65 set on July 5th. The stock also experienced multiple drops in its valuation. To be precise, it slipped to 29 times the next-12-months earnings from 34 times on July 5th and below a five-year average of 41 times. Yet, the stock was in the good books of the analysts.
For instance, analyst Jason Helfstein of Oppenheimer maintained a buy rating on the stock with a target price of US$725. Netflix’s success rate was 50%, which is the number of the analyst’s successful ratings divided by his/her total number of ratings over the past year. While articulating his faith in the stock’s potential, Helfstein had the following to say:
“The company has the best long-term visibility within our coverage and deserves to trade at a premium valuation, in our view.”
In explaining the factors that give birth to this optimism about the stock, Helfstein said:
“NFLX’s revenue drivers are very clear through 2026: second-half 2024 driven by continued subscriber tailwinds; fiscal 2025 benefits from price increases & fiscal 2026 from advertising monetization at scale.”
Netflix’s revenue pattern has been consistent. Between 2019 and 2023, revenue grew from US$20.15 billion to US$33.72 billion, a growth of 6.7% from the previous year.
While speaking about the robustness of Netflix’s revenue and earning strategy, analysts showed optimism and trust. The latest report from Netflix came on July 18th, with an EPS of $4.88, $0.14 better than the analyst estimate of $4.74. The company also outperformed in the area of revenue by earning US$9.56 billion in the quarter against a consensus estimate of US$9.53 billion.
While pointing towards strategic factors that might pay off well for Netflix, Thomas Monteiro, senior analyst at Investing.com, said the following:
“The better-than-expected figures in EPS growth and revenue show that the strategy of pushing users into the ad-tier business is just starting to pay off and still has a very high untapped potential.”
Whatever the strategy, Netflix’s core business model pivots on the volume of subscribers it attracts over time. In that regard, Netflix’s performance has been more than satisfactory. Between 2019 and 2023, the platform has grown consistently, from a little over 167 million subscribers to 260 million in 2023.
Among online streaming companies, Netflix—despite facing competition from several peers—remains significantly ahead, holding a 44.21% market share at the beginning of 2023.
Another crucial indicator of Netflix’s strong and sustainable future is its successful engagement with young people. According to Ampere’s research, nearly 80% of Americans between the ages of 18 and 34 are either Netflix subscribers or have access to it through shared credentials within families or shared passwords.
Netflix’s content is also highly revered. In the first year of the pandemic, Netflix won forty-three awards, and in the subsequent year, it got forty-four awards to set the record for most victories in a single year, outclassing CBS’s 1974 record.
Overall, Netflix appears to be a stock that can emerge victorious despite momentary market volatilities, thanks to its growth driven by quality content that engages youth—subscribers likely to pay off in the long run—supported by a strong and efficient revenue and earnings strategy.
After Netflix, another tech firm that appears steady and prepared for the long run is NVIDIA.
The August first-week volatility also affected NVIDIA. It slipped 6.4%, bringing its decline from a 52-week high to nearly 29%. Yet, the stock appears to be prepared for the long run, as its fundamentals are strong.
NVIDIA’s revenues saw momentous growth between 2023 and 2024 (so far). Between 2019 and 2023, NVIDIA’s revenue grew from US$11.716 billion to US$26.974 billion. However, between 2023 and 2024, it grew from nearly US$27 billion to almost US$61 billion. And there is no stopping here, as the estimates suggest it would close the year at close to US$111 billion.
Many analysts were asked whether NVIDIA could sustain its momentum. The responses were largely affirmative, with the expectation that demand would stay strong and profits would remain substantial as GPUs increasingly replace CPUs in data centers and AI models evolve to handle more complex tasks, including images, video, and 3D.
Although this year, the bulk of the revenues came from its Data Center vertical, NVIDIA caters to a range of segments, including gaming, automotive, professional visualization, OEM, and others. It makes NVIDIA’s position in the market well-diversified and potent for long-term growth.
Elaborating on the prospects of NVIDIA, Thomas Monteiro, Senior Analyst at Investing.com, expected the company’s leadership in the AI revolution to remain unchallenged for now. He further added:
“Against a backdrop of increasing competition and projected self-reliance on the chip space for big tech, both profitability and guidance indicate that growing demand in all areas should more than make up for the challenges in the rest of the year.”
Geographically, NVIDIA’s business is well diversified, with substantial revenues earned from all major economic regions, including China, Europe, Asia Pacific, Taiwan, and the United States.
Despite many competitors, NVIDIA’s penetration remains strong in its core market. In Q4 2023, the company owned 80% of the GPU market share. Today, more than 90% of neural network training runs on NVIDIA GPUs.
NVIDIA has many other feathers to its cap, which would not have been possible if its fundamentals were not so strong. For instance, it was the first chipmaker to ever reach a market capitalization of $1 trillion.
Altogether, NVIDIA appears to be one of the most equipped and future-ready companies to serve a world that will soon have more PCs, remote work equipment, high-end video gaming devices, and large data centers.
If preparedness for the future is what makes a stock fit for the long run, Coinbase should definitely be the third stock on our list, as it serves the asset of the future like no one else!
The market’s tumble on August 5th did not spare Coinbase, as its price dipped to nearly US$166. However, at the time of writing, its stock price is recovering and is currently hovering around US$194.
Coinbase’s first quarter 2024 earnings were strong, more than doubling from last year to $1.6 billion. It gained momentum from renewed consumer interest in its trading platform after the Bitcoin ETFs in the US were approved and introduced within the SEC’s regulatory boundaries. According to Morningstar’s equity analyst Michael Miller, Coinbase’s high fees relative to its peers show that it is under no considerable pressure. The analysis also suggests a resilient market share for the company.
Many factors fundamentally go in favor of Coinbase for it to emerge as a winner in the long run. For instance, it is perhaps the only leading cryptocurrency exchange in the United States that has carved a reputation for being a reliable and compliant place to buy and sell cryptocurrency in a space often associated with vulnerable security practices and irregular regulatory ecosystems.
Coinbase’s basic financial structure is strong. As of December 2023, it had over $5.1 billion in cash and more than $1 billion in cryptocurrency, including over $550 million in USDC. The debt is lower than US$3 billion. Strong cash reserves make Coinbase more resilient.
Operationally, the company’s prospects remain strong, as participation is increasing, driving the overall volume up. In the latest quarter, Coinbase’s retail trading revenue increased by 99% from the previous quarter and 184% from last year to $935.2 million.
Analyst firm Oppenheimer was also optimistic in its assessment of Coinbase and the space in which it operates. In April this year, the firm highlighted the fact that since January, the stock had been up over 100%, significantly overperforming the S&P 500 index, which only had a measly 6% rise.
The analysts were as specific as they could get when they said the following:
“At this level of trading, we are cautious about the near-term volatility, but remain positive on the long-term adoption of blockchain technology.”
Concluding Thoughts
Markets are known to be cyclical, with frequent ups and downs being one of their most defining characteristics. While a volatile market may seem unsettling for investors in the short term, it also presents an opportunity to identify stocks with resilience and strong fundamentals.
If a business has its value propositions right and delivers those values in an accessible manner, there is every reason for investors to be rewarded in the long run. However, it’s crucial to be cautious and mindful of the company’s revenue and earnings strategy, its financial management, and the efficiency of the logistics that support its commitments.
