The Nasdaq Composite has had a dream run in the past two years, buoyed by declining inflation, interest rate cuts, and a solid artificial intelligence (AI) boom. However, that momentum seems lost now, considering the tech-heavy index has declined about 10% in 2025. The U.S. market is now concerned about a potential U.S. recession and the impact of new trade policies — fears that the Trump administration has failed to calm.
In the face of heightened market volatility and low investor confidence, some prominent analysts expect the Nasdaq to see even more selling in the coming days. While this pullback is worrisome, it can also prove to be a smart time to buy stakes in some fundamentally strong Nasdaq stocks that have seen a significant correction.
Here’s why Nvidia (NASDAQ: NVDA) and Microsoft (NASDAQ: MSFT) fit the bill. Let’s assess why these stocks could prove compelling picks now.
Nvidia released a strong fiscal 2025 performance (ended Jan. 31, 2025) on Feb. 26, with revenue growing 114% year over year to $130.5 billion and operating income rising 147% to $81.5 billion. While the company faces gross margin pressures due to the ongoing ramp of Blackwell architecture chips, it expects gross margins to revert to mid-70s levels in fiscal 2026.
Blackwell architecture chips are undoubtedly a major growth catalyst for Nvidia and contributed $11 billion in sales in the fourth quarter. These chips have been designed mainly for inference (deploying and running AI models) and reasoning workloads, with 25 times higher token output and 20 times lower cost than previous H100 chips. Reasoning is a special use case in inference workloads, involving more computation per task for resolving complicated and multistep problems.
Besides inference, Blackwell architecture has been optimized for all other AI workloads, including pre-training and post-training deployed across cloud, on-premise, and enterprise. Unsurprisingly, major cloud service providers, such as Microsoft, Meta Platforms, and Alphabet, are using Blackwell graphics processing units (GPUs) to process their AI workloads.
Nvidia accounted for almost a 92% share of the data center GPU market (AI hardware market) in 2024. The company has also created a strong moat for its hardware business with its Compute Unified Device Architecture (CUDA) software stack (a comprehensive parallel programming development environment optimized for running AI and high-performance computing workloads on Nvidia chips).
Since CUDA is already well-adopted by developers and AI researchers globally, switching to competitors’ chips can involve significant costs for client organizations. Subsequently, Nvidia’s hardware-software offerings are finding applications in new use cases in areas such as agentic AI, robotics, sovereign AI, and autonomous vehicles.
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Despite the many pros, investors are disappointed with Nvidia’s decelerating data center growth and margin pressures amid a difficult macroeconomic environment marked by export controls, tariff wars, and surging geopolitical pressures. Subsequently, Nvidia’s shares have tanked by nearly 28% from their 52-week high ($149.43 as of Jan. 6).
Nvidia is trading at just under 20 times sales, significantly lower than its historical five-year average of 26.2, and at 36.4 times trailing-12-month earnings, lower than its historical five-year average of 71.6. More impressively, Nvidia’s price-to-earnings-to-growth (PEG) ratio is just 0.25, which is modest for a company with exceptional growth prospects. Considering Nvidia’s AI market leadership, robust hardware-software ecosystem, and corrected valuation, the stock may be a smart buy now.
Shares of Microsoft are down by about 10% in 2025. While the fall is not as steep as seen in Nvidia stock, the dip has created an attractive entry point for astute investors.
Microsoft came out with a healthy financial performance in the second-quarter of its fiscal 2025 (ended Dec. 31, 2024), with revenue rising 12% year over year to $69.6 billion and net income increasing 10% to $24.1 billion. Despite this, the stock performed negatively due to investor concerns about weak third-quarter guidance and a slowdown in the Azure cloud services business due to capacity constraints.
However, Microsoft is well-positioned to benefit from a phenomenon termed as Jevons Paradox. Accordingly, increased price performance gains for AI hardware and software in inference workloads will lead to exponentially greater access and demand for AI hardware and software services. The company’s strategic partnership with OpenAI has also been a major pillar of its AI strategy.
In the second quarter, commercial bookings were up by 67% year over year, driven by Azure commitments from OpenAI. With OpenAI’s cutting-edge AI models, Microsoft has revamped its entire product ecosystem. Furthermore, since OpenAI’s application programming interfaces (APIs) currently run primarily on Azure, it helps Microsoft further attract clients to its cloud platform.
The tech giant is also at the forefront of the ongoing agentic AI revolution with its CoPilot offerings. Microsoft 365 CoPilot is seeing strong adoption across enterprises of all sizes. Coupled with CoPilot Chat and CoPilot Studio, Microsoft is aggressively pushing forth the usage of AI agents in organizational workflows.
Microsoft’s shares trade at just over 30 times trailing-12-month earnings, which seems rich for a company with moderate growth numbers. However, that valuation is cheaper than its historical five-year average of 33.2. The company also returned a hefty $9.7 billion to shareholders as dividends and share repurchases in the second quarter.
The company’s commercial remaining performance obligations (RPOs, indicative of future revenue that can be earned from existing contracts) were $298 billion at the end of the second quarter. Thanks to high long-term revenue visibility, Microsoft enjoys a premium valuation. Hence, it makes sense to pick at least a small stake in this stock now.
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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Manali Pradhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Meta Platforms, Microsoft, and Nvidia. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Nasdaq Sell-Off: 2 AI Stocks That Are on Sale in 2025 was originally published by The Motley Fool
