Nasdaq’s Recent Struggles
The Nasdaq Composite, which has enjoyed a significant bull run, is experiencing a period of difficulty. Fueled by factors like declining inflation, interest rate cuts, and a flourishing artificial intelligence (AI) sector, the index saw substantial gains. However, 2025 has presented challenges and the tech-heavy index has declined approximately 10%. Concerns in the U.S. market regarding a possible recession and the impact of new trade policies add to investor anxiety.
Given the rising market volatility and the decline in investor confidence, some analysts predict a potential correction and further selling pressure in the NASDAQ composite index. While this pullback is certainly cause for concern among investors, it may provide a favorable moment to acquire stakes in fundamentally strong Nasdaq-listed companies; specifically, those that have undergone a substantial correction in their market value.
Two such firms that meet this criterion are Nvidia (NVDA) and Microsoft (MSFT). Let’s examine why these stocks might be compelling picks at the current time.
Nvidia: A Contender in the AI Race
Nvidia’s fiscal performance for 2025, which concluded on January 31, 2025, was substantial. The company revealed impressive growth on February 26, with a revenue increase of 114% year-over-year to $130.5 billion. Their operating income simultaneously rose 147% to $81.5 billion. Despite gross margin pressures stemming from the ongoing ramp-up of Blackwell architecture chips, the company anticipates margins will return to mid-70s levels by fiscal year 2026.
Blackwell architecture chips serve as a major growth catalyst for Nvidia, contributing $11 billion in sales in the fourth quarter of the fiscal year. Primarily designed for inference (running and deploying AI models) and reasoning workloads, the Blackwell architecture chips feature 25 times higher token output and lower costs (20 times) compared to the H100 chips of previous generations. Reasoning involves more intricate computations to solve more complex multi-step problems. Apart from inference, Blackwell architecture has been optimized for other AI workloads, including pre-training and post-training, deployed across cloud, on-premise, and enterprise settings.
It is therefore unsurprising that prominent cloud service providers, such as Microsoft, Meta Platforms, and Alphabet, are deploying Blackwell graphics processing units (GPUs) to power their AI workloads. In 2024, Nvidia held approximately a 92% share of the data center GPU market which highlights their strong position in the AI hardware space. The company’s development of the Compute Unified Device Architecture (CUDA) software stack has helped create a strong moat for its hardware business. With the CUDA software, the company provides a parallel programming environment, which has been optimized for running AI and high-performance computing workloads on Nvidia chips. Because CUDA is currently well-adopted by developers and AI researchers across the globe, for client organizations, switching to a competitor’s chips requires significant costs. Subsequently, Nvidia’s hardware-software offerings are finding applications in areas such as robotics, sovereign AI, agentic AI, and autonomous vehicles.
Despite these advantages, investors have expressed disappointment, particularly regarding the slowdown in the company’s data center growth coupled with margin pressures. These challenges coexist within a difficult macroeconomic environment, characterized by export controls, trade disputes, and increased geopolitical tensions. Consequently, from its 52-week high of $149.43 (reached on January 6th), Nvidia’s shares have declined by nearly 28%. While Nvidia is currently trading at just under 20 times sales (significantly lower than its five-year historical average of 26.2) and approximately 36.4 times trailing-12-month’s earnings (low than the past five-year average of 71.6), its price-to-earnings-to-growth (PEG) ratio is a modest 0.25. Considering its leadership in the AI market, coupled with its robust hardware-software ecosystem and its current valuation, Nvidia may represent a smart buy.
Microsoft: Capitalizing on the AI Revolution
In 2025, shares of Microsoft are down by approximately 10%. While this drop is not as steep as seen in Nvidia’s stock, it has resulted in an attractive entry point for investors. Microsoft’s fiscal results for the second quarter of 2025 (ended December 31, 2024), were sound, with a 12% increase in revenue year over year to $69.6 billion along with a 10% increase in net income to $24.1 billion. However, the stock experienced a negative performance due to investor concerns regarding weak third-quarter guidance and the slowdown in the Azure cloud services business.
Microsoft is strategically positioned to gain from Jevons’ Paradox. Increased returns on AI software and hardware prices, especially within inference workloads along with AI services, would increase demand and subsequent accessibility to AI hardware and software services. Also, the company’s partnership with OpenAI forms a major pillar of its AI strategy. Driven by Azure commitments from OpenAI, commercial bookings grew by 67% year over year during the second quarter. Through OpenAI’s AI models, Microsoft has streamlined its product ecosystem. As OpenAI’s application programming interfaces (APIs) currently operate on Azure, Microsoft can attract more cloud platform clients. Furthermore, Microsoft is at the forefront of the current agentic AI revolution through its CoPilot offerings. Additionally, with CoPilot Chat and CoPilot Studio, Microsoft is actively promoting the use of AI agents in workflows.
Microsoft’s shares are trading at just over 30 times trailing-12-month earnings. It currently appears rich when compared to its average growth numbers. However, this valuation is lower than its five-year historical average of 33.2. As a show of confidence, the company returned $9.7 billion to shareholders through dividends and share repurchases in the second quarter. At the end of the quarter, commercial remaining performance obligations (RPOs), which indicate revenue that the company might earn from existing contracts, were $298 billion. With high long-term revenue visibility, Microsoft enjoys a premium valuation. Therefore, buying a stake in this stock is a logical choice currently.
