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Market Plunge: 2 Discounted Growth Stocks to Buy Before the Rebound

The S&P 500 has fallen 22% from its all-time high, putting the benchmark index in a bear market. Losses of that magnitude can leave even experienced investors feeling rattled, but the worst mistake you can make is allowing yourself to get scared out of high-quality stocks. The duration and severity of a bear market varies, but every past downturn has eventually been washed away by a new bull market.

Building on that idea, stocks like Nvidia (NASDAQ: NVDA) and Axon Enterprise (NASDAQ: AXON) are down more than 50%, but the underlying businesses remain healthy and the long-term investment theses are still very much intact. That creates a buying opportunity for patient investors.

Here's what you should know.

1. Nvidia

Nvidia technology has become the gold standard in several quickly growing end markets, including graphics, scientific computing, and artificial intelligence (AI). In fact, the company holds over 90% market share in workstation graphics and supercomputer accelerators, and Nvidia AI has consistently set performance records at the MLPerf benchmarks over the last three years.

Nvidia's core innovation is the graphics processing unit (GPU), a chip built for compute-intensive tasks. That means GPUs excel at rendering realistic graphics, accelerating machine learning applications, and making sense of tremendous amounts of data. But Nvidia has become more than a mere chipmaker, bolstering its portfolio with subscription software for 3D design, data analytics, and AI development. The company has also added high-performance networking solutions to its catalog to reinforce its value proposition in the data center.

Collectively, its best-in-class technology and brand authority have made Nvidia a financial machine. Despite supply chain snags and high inflation, revenue skyrocketed 53% to $29.5 billion over the past year, and free cash flow soared 44% to $7.5 billion. More importantly, the company is set to maintain that momentum in the coming years.

Nvidia has woven itself into the fabric of daily life. Every film nominated for an Oscar for Best Visual Effects in the last 14 years has been rendered with Nvidia technology. Retailers like Amazon, Kroger, and PepsiCo use Nvidia products to build digital twins that improve store layout, optimize supply chains, and train autonomous robots. And social media companies like Snap and Pinterest use Nvidia hardware and software to make recommendations more relevant.

Looking ahead, management puts its market opportunity at $1 trillion, and Nvidia should benefit from the continued evolution of trends like virtual reality and the metaverse, autonomous robots and self-driving cars, and the integration of AI into more aspects of daily life.

Currently, shares trade at 14.4 times sales, a bargain compared to Nvidia's average valuation of 20 times sales over the past three years. That's why this growth stock is worth buying today.

2. Axon Enterprise

Axon specializes is public safety. For many years, its primary product was a conducted energy device (CED) sold under the brand name Taser. In fact, Axon still ranks as the leading supplier of CEDs, but it has also expanded into software and sensors. In that ecosystem, Axon sensors like body cameras and in-car cameras stream video data to Axon Cloud, a suite of software for digital evidence management, report writing, and real-time situational awareness.

As a whole, Axon makes clients like law enforcement and federal agencies more transparent and efficient by digitizing paper-based processes. Studies have also shown that body cameras reduce the time officers spend in court by boosting guilty pleas and providing objective evidence. Axon's software also incorporates artificial intelligence to automate video redaction and accelerate report writing, and the company believes its AI will eventually eliminate paperwork altogether.

Financially, Axon is growing at a steady clip. Revenue climbed 27% to $925 million over the past year, fueled by particularly strong momentum in its software and sensors business. On the bottom line, the company generated $51 million in free cash flow, up tenfold from $4.8 million in the prior year.

Looking ahead, shareholders have good reason to be optimistic. Axon puts its market opportunity at $52 billion, and the company's success in the CED market has allowed it to build a customer relationship with nearly 95% of U.S. law enforcement agencies. That competitive edge should supercharge its software and sensors business in the coming years.

More broadly, Axon is also working to expand into the commercial sector, as its products can be used for retail loss prevention, compliance investigations, and on-site security. On that front, management noted encouraging momentum in the most recent quarter.

Currently, shares of Axon trade at 6.5 times sales, significantly cheaper than the three-year average of 10.6 times sales. That's why this growth stock looks like a bargain right now.

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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. Trevor Jennewine has positions in Amazon, Axon Enterprise, Nvidia, and Pinterest. The Motley Fool has positions in and recommends Amazon, Axon Enterprise, Nvidia, and Pinterest. The Motley Fool has a disclosure policy.


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