High-growth tech stocks were the stock market’s red-headed stepchildren amid the Federal Reserve’s struggles to flight inflation in 2022. The tech-heavy Nasdaq Composite index fell 33% last year, far deeper than the broader S&P 500 index’s 19% drop.

2023 has been a different story, as the inflation threat appears to be abating. The Nasdaq index is up by 11% year to date, more than doubling the S&P 500’s 4% gain.

But the rising tide is leaving some excellent boats behind. These three eminently ship-shape tech stocks underperformed the Nasdaq-100 index both in 2022 and year to date:


2022 Return

Year-to-Date Return

Netflix (NFLX 1.08%)



Alphabet (GOOG 0.51%) (GOOGL 0.42%)



Snowflake (SNOW 0.14%)



Data source: YCharts. Year-to-date returns were recorded at 10:30 a.m. ET on March 8, 2023.

Let me explain why I think the market is making three obvious mistakes here, opening up terrific buying windows for astute investors.

The underestimated value of Netflix’s strategy shift

The leading video-streaming platform is going through some changes as we speak.

Subscription fees have been the only revenue stream that mattered to Netflix investors since the video streams became a paid service in 2011. Furthermore, the business was optimized to deliver as many new subscribers as possible, quarter by quarter and year by year.

Now, Netflix has shifted its focus from maximum subscriber growth to optimal revenue and profits. You know, the way most mature companies like to run their business. The subscriber pool is deep enough to let Netflix switch gears and aim for sustainable profits instead.

So the company has introduced a new revenue stream in the form of lower-cost subscriptions that put commercials in front of the viewer. Netflix is also cracking down on password-sharing between people who don’t live together — a practice it actually encouraged and promoted a few years ago.

The strategy shift may lead Netflix down some bumpy roads. From consumers and ad buyers to content producers and streaming platform partners, Netflix’s stakeholders are adjusting to new ideas and processes. In particular, subscriber growth could halt or even reverse if millions of password-sharing viewers adopt a paid sub-account instead of starting a brand-new subscription. Revenue goes up either way, but the sub-account doesn’t increase the company’s reported subscriber numbers.

And since Netflix investors focused on those subscriber figures for so long, any shortfall on that metric tends to provoke big share-price drops. January’s earnings-based stock jump was followed by price drops in February as the password-sharing crackdown started to take effect. The bears are still biting Netflix for all the wrong reasons and the stock has a bright future from today’s low buy-in price.

Alphabet, the artificial intelligence visionary

Alphabet is under the gun these days because investors see user-friendly artificial intelligence (AI) tools as a serious threat to the company’s Google-branded online search and advertising empire.

I agree that simple AI tools are poised to change many things in the near future. For example, more people will have easier access to online information sources. That’s especially true for people who never got comfortable with social networks and Google searches but wouldn’t mind having a chat with an automated tool that almost sounds human. Speed up ChatGPT’s sluggish responses and pair the system with a high-quality voice transcription tool, and you’ll have a real game changer for that demographic.

But you shouldn’t forget that Alphabet is playing that game, too.

Six years ago, Google shocked the chess world with a self-trained AI bot named AlphaZero. After just six hours of training, the bot was able to beat the best non-AI chess engines of that era. While it’s a highly specialized machine learning system, the technology used to create AlphaZero has a lot in common with ChatGPT’s platform.

Everyone is still learning the ropes in the consumer-facing AI market. An early demonstration of the ChatGPT-like Google Bard showed a factual error on a global stage. Oops. Then again, Microsoft displayed similar errors in its unveiling of a ChatGPT-infused version of the Bing search engine. I’m sure more errors will follow as other service providers jump onto the AI chatbot bandwagon.

And when all is said and done, few organizations can match Alphabet’s deep AI expertise and massive financial assets. The market is changing, but Alphabet and Google will roll with the punches. I wouldn’t be surprised to see this company take the lead in AI-enabled search tools within the next couple of years.

So the rise of AI-based chatbots is not much of a threat to Alphabet. In fact, I think it’s an opportunity to cement the company’s position of global leadership. Therefore, I’m tempted to buy more Alphabet stock on every dip, including the one that started more than a year ago.

Snowflake’s sky-high valuation: Justified or overblown?

Cloud-based data warehousing giant Snowflake was one of the highest-priced tech stocks in the early days of the pandemic. Shares changed hands at lofty valuation ratios like 100 times sales and 23,000 times free cash flow by the end of 2021. Snowflake’s stock was overdue for a correction back then.

A 78% price drop later, Snowflake still isn’t cheap. These days, the shares trade at 22 times sales and 91 times free cash flow, which would make most stocks look overpriced.

But it’s hard to shrug off the idea that Snowflake actually deserves a massive premium. Trailing sales have more than tripled in three years. Free cash flow was negative as recently as the fall of 2021, but now amounts to 24% of Snowflake’s revenue. And the growth story continues. The company crushed analyst expectations — as usual — in last week’s fourth-quarter report.

Snowflake’s expertise in data organization and analytics is finding more and more customers in an increasingly data-driven economy. With easy access to rising sales, Snowflake has more money left over after paying its fixed expenses, which is why the cash-based profit margin is expanding. Furthermore, management has boosted its addressable target market from an $80 billion annual sales opportunity three years ago to $248 billion in the latest update.

This growth train isn’t stopping anytime soon. Dyed-in-the-wool value investors may be more comfortable with different names, but Snowflake’s bundle of skyrocketing expansion vectors looks good to growth-oriented investors.


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