As the stock market continues its upward trajectory, investors are on the hunt for undervalued gems that have the potential to soar. Two stocks that have caught our attention are Advanced Micro Devices (AMD) and Duolingo (DUOL), both of which have experienced significant declines of 35% and 43%, respectively. Let's dive into the reasons behind these drops and explore why these stocks could be excellent additions to your portfolio.



Advanced Micro Devices (AMD)

AMD, a leading semiconductor company, has faced headwinds in recent months due to a softening market for advanced computer chips. The company's stock has plummeted 49% from its all-time high, reflecting investor concerns about the market's perception of its value. Additionally, the slowdown in consumer spending, driven by rising inflation and interest rates, has negatively impacted AMD's business segments, such as gaming consoles and electric vehicles.

However, there are several reasons to be optimistic about AMD's future prospects:

1. Data center market growth: Despite the challenges in consumer segments, AMD's data center market has carried the company through the tough period and is expected to be the strongest growth driver in the future. Businesses continued investing in their digital transformations in 2022 through cloud technology, which is likely to continue.
2. Xilinx acquisition: AMD's acquisition of adaptive computing leader Xilinx for $49 billion could supercharge the company's data center products, further boosting its growth potential.
3. Attractive valuation: AMD's stock trades at a P/E ratio of 23.2, which is 43% cheaper than its P/E ratio at this time last year and a slight discount to the 23.6 P/E of the Nasdaq-100 index. This spells opportunity for investors looking for a bargain.



Duolingo (DUOL)

Duolingo, the world's most successful digital language education platform, has also experienced a significant decline in its stock price. Despite the company's solid financial performance in 2022, with consistent increases in revenue guidance throughout the year, the broader tech sell-off has contributed to its stock's decline.

There are several reasons to be bullish on Duolingo's future:

1. Mobile-first approach: Duolingo's mobile-first approach makes it very accessible, with over 500 million app downloads and 56.5 million monthly active users in Q3 2022. This accessibility drives user engagement and growth.
2. Gamified user experience: Duolingo's gamified user experience takes learning out of the typical classroom setting and makes it entertaining. Plus, it connects users with friends and family, adding a social and competitive dimension that drives engagement.
3. Strong revenue growth: Duolingo's paid subscribers increased by 68% year-over-year in Q3 2022, leading to a 51% jump in revenue. This growth is expected to continue, as the company is the highest-grossing mobile app in the education category across both Apple's App Store and Alphabet's Google Play Store.

In conclusion, AMD and Duolingo have faced significant declines in their stock prices due to market conditions and broader tech sell-offs. However, both companies possess strong fundamentals and growth prospects that make them attractive investments for long-term investors. As the bull market continues, these undervalued stocks could be poised for significant gains.