Nasdaq Sell-Off: Two AI Stocks Worth Considering in 2025

The Nasdaq Composite has enjoyed impressive gains over the past couple of years, driven by falling inflation, interest rate reductions, and a booming interest in artificial intelligence (AI). However, that upward trend appears to be slowing down, as the tech-focused index has experienced a decline of about 10% in 2025. Market participants are growing increasingly concerned about the possibility of a U.S. recession and the implications of new trade policies, leaving investors uncertain.

Amidst this heightened market volatility, analysts are predicting further selling pressure on the Nasdaq in the near future. Although this downward trend can be unsettling, it may also present a valuable opportunity to invest in fundamentally strong Nasdaq stocks that have recently seen significant price corrections.

Two companies that stand out in this environment are Nvidia and Microsoft. Let's explore why these AI-driven stocks are worth considering now.

Nvidia

Nvidia reported impressive results for its fiscal year 2025 (which ended on January 31, 2025) on February 26, showcasing a remarkable revenue increase of 114% year-over-year to reach $130.5 billion, along with a 147% rise in operating income to $81.5 billion. Though the company is facing some pressure on its gross margins due to the rollout of its Blackwell architecture chips, it anticipates that gross margins will recover to mid-70% levels by fiscal 2026.

The Blackwell architecture chips are a key growth driver for Nvidia, generating $11 billion in sales during the fourth quarter. These chips are specifically designed for running AI models and addressing inference and reasoning workloads. They are engineered to deliver 25 times the output of tokens and are 20 times less expensive than the prior H100 chips, providing significant advantages for complex tasks.

In addition to their use in inference, Blackwell architecture chips are optimized for all AI workloads, covering pre-training and post-training tasks across cloud platforms, on-premise solutions, and enterprise environments. Major cloud service providers like Microsoft, Meta Platforms, and Alphabet have adopted Blackwell's GPUs for enhancing their AI processing capabilities.

Nvidia held nearly 92% of the data center GPU market in 2024, solidifying its position in AI hardware. The company has built a strong competitive advantage through its Compute Unified Device Architecture (CUDA) software stack, facilitating efficient parallel programming for AI and high-performance computing tasks. Given that CUDA is widely used by developers and researchers, switching to competitor offerings may incur substantial costs for organizations.

Nonetheless, despite these strengths, investor sentiment has been dampened by slowing growth in Nvidia's data center segment and ongoing margin pressures in a challenging macroeconomic landscape marked by export restrictions and geopolitical tensions. Consequently, Nvidia's stock has declined around 28% from its recent peak of $149.43 observed on January 6.

Currently, Nvidia trades at roughly 20 times its sales—a significant drop from its five-year historical average of 26.2 times. Additionally, its trailing twelve-month earnings multiple stands at 36.4, well below its average of 71.6 from the past five years. Notably, Nvidia’s price-to-earnings-to-growth (PEG) ratio is just 0.25, highlighting the stock’s potential for growth in relation to its price. Given Nvidia's commanding position in the AI sector and its attractive valuation, it could be a smart investment choice at this time.

Microsoft

Microsoft's shares have also seen a decline of approximately 10% in 2025. Although this drop is not as severe as Nvidia's, it has created a tempting entry point for savvy investors.

In the second quarter of its fiscal 2025, Microsoft reported solid financial results with a 12% year-over-year revenue increase to $69.6 billion, coupled with a 10% rise in net income to $24.1 billion. However, market reactions to weak guidance for the third quarter and slowing growth in Azure cloud services due to capacity constraints caused a dip in stock performance.

Microsoft stands to gain from a phenomenon called Jevons Paradox, which suggests that advancements in price and performance of AI hardware and software will lead to exponentially increased demand for these services. The company's strategic alliance with OpenAI has also been a cornerstone of its AI strategy.

During the second quarter, commercial bookings surged 67% year-over-year, spurred by renewed Azure commitments from OpenAI. By integrating OpenAI's groundbreaking AI models, Microsoft has revitalized its entire product lineup. Moreover, since OpenAI’s application programming interfaces (APIs) predominantly operate on Azure, this bolsters Microsoft’s appeal in the cloud services sector.

Additionally, Microsoft is leading the charge in the ongoing adoption of agentic AI through its CoPilot products. The Microsoft 365 CoPilot has witnessed robust uptake by businesses of all sizes, while products such as CoPilot Chat and CoPilot Studio are facilitating the growing use of AI in organizational workflows.

Microsoft's stock currently trades a little over 30 times its trailing twelve-month earnings, which many might consider expensive given its moderate growth rates. Yet, this valuation is still cheaper than its five-year average of 33.2. Notably, the company returned $9.7 billion to shareholders through dividends and share repurchases in the second quarter.

Outstanding commercial remaining performance obligations (RPOs), which indicate future revenue streams from existing contracts, were recorded at $298 billion at the end of the second quarter. Thanks to this substantial long-term revenue visibility, Microsoft enjoys a premium valuation. Therefore, investing in even a small stake in this stock could prove advantageous.

Nasdaq, AI, Stocks