Nasdaq Sell-Off: Two AI Stocks to Consider in 2025

With the recent pullback in the Nasdaq Composite, which has experienced about a 10% decline in 2025, now may be an opportune moment for savvy investors to pick up valuable AI-driven stocks at discounted prices.

The Nasdaq had a stellar performance over the last two years, fueled by decreasing inflation, interest rate reductions, and a booming artificial intelligence (AI) sector. However, worries about a potential U.S. recession and the implications of new trade policies have dampened this progress, leaving the market with a sense of unease.

Amid increased market fluctuations and a dip in investor confidence, analysts forecast further declines in Nasdaq stocks. Such corrections, while concerning, can also provide a fruitful opportunity to acquire shares in fundamentally strong companies that are momentarily undervalued.

Two notable AI stocks that could present compelling buying opportunities right now are Nvidia and Microsoft. Let's delve into why these companies might be worth considering.

Nvidia

Nvidia has shown remarkable results for its fiscal year 2025, which ended on January 31, 2025. The company reported a staggering revenue growth of 114% year-over-year, reaching $130.5 billion, with an operating income increase of 147% to $81.5 billion. Although Nvidia encounters some gross margin pressures due to its new Blackwell architecture chips, it anticipates a resurgence in gross margins in fiscal 2026.

The Blackwell chips are a significant factor contributing to Nvidia's growth, accounting for $11 billion in sales during the fourth quarter. These chips are designed specifically for AI tasks such as inference and reasoning, offering 25 times higher token output and 20 times lower costs compared to their predecessor, the H100 chips.

In addition to inference, the Blackwell architecture optimizes all AI workloads, making it appealing for various deployment platforms, from cloud services to on-premise solutions. Leading cloud providers like Microsoft, Meta Platforms, and Alphabet utilize Blackwell GPUs for their AI processing needs.

Nvidia commanded a commanding 92% market share in data center GPUs in 2024, establishing a robust foundation through its Compute Unified Device Architecture (CUDA) software environment tailored for AI and high-performance computing tasks. Developers find it costly to switch to competitor hardware, strengthening Nvidia's competitive advantage.

Despite these strengths, Nvidia's stock has seen a decline of approximately 28% from its peak in January, largely due to slowing data center growth and declining margins amid a challenging macroeconomic landscape.

Nvidia currently trades at around 20 times its sales, a considerable decrease from its historical average, while its price-to-earnings-to-growth (PEG) ratio stands at a mere 0.25. Given Nvidia’s leading role in the AI market and favorable valuation, it presents an attractive investment opportunity at this time.

Microsoft

Similarly, shares of Microsoft are down roughly 10% this year. Though the decline is less severe than Nvidia’s, it offers a tempting entry point for investors.

Microsoft reported solid financial results for the second quarter of its fiscal 2025, with revenues up 12% year-over-year, reaching $69.6 billion, and net income increasing by 10% to $24.1 billion. However, concerns about weak guidance and slowing growth in its Azure cloud services affected its stock performance.

Microsoft is poised to gain from a concept known as Jevons Paradox, which posits that enhancements in AI hardware and software performance will lead to greater demand. Its strategic alliance with OpenAI has been instrumental in driving its AI initiatives.

In the latest quarter, commercial bookings surged by 67%, propelled by Azure commitments from OpenAI. This partnership has enabled Microsoft to enhance its entire product ecosystem, as OpenAI's APIs primarily operate on Azure, further drawing customers to its cloud platform.

Microsoft is also pioneering the agentic AI movement through its CoPilot tools, receiving rapid adoption across various enterprises. Innovations such as Microsoft 365 CoPilot, CoPilot Chat, and CoPilot Studio are pushing AI integration into business workflows.

Although Microsoft's shares currently trade at approximately 30 times trailing earnings, this valuation is more favorable than its five-year historical average. Additionally, the company returned $9.7 billion to shareholders in the form of dividends and buybacks, showcasing its commitment to returning value.

The company’s commercial remaining performance obligations (RPOs)—indicating future revenue from existing contracts—stand at $298 billion as of the second quarter, providing strong long-term revenue visibility. This factor underpins a premium valuation, making now a logical point for investors to consider establishing a position in Microsoft.

In conclusion, while the Nasdaq index has experienced a pullback, investing in well-established AI companies like Nvidia and Microsoft may be a wise decision amidst market volatility. These stocks offer compelling growth theories, strategic advantages, and potentially favorable valuations.

AI, Stocks, Investing