Nasdaq Correction: Two Stocks You Should Consider Buying on the Dip

The Nasdaq-100 comprises 100 of the largest nonfinancial companies traded on the Nasdaq stock exchange. Over the past decade, it has achieved impressive returns of 343%, which is double the performance of the more diversified S&P 500 index. This is largely due to its concentration in major technology companies.

Currently, the Nasdaq-100 is in correction territory, having dropped 13% from its recent peak. Some of the key players in this index, often referred to as the "Magnificent Seven," are at the forefront of this decline. This prestigious group is known for its significant market performance and substantial sizes. Below is a list of these seven companies along with their market caps:

1. Apple: $3.1 trillion.
2. Microsoft: $2.8 trillion.
3. Nvidia: $2.8 trillion.
4. Amazon: $2.1 trillion.
5. Alphabet: $2 trillion.
6. Meta Platforms: $1.5 trillion.
7. Tesla: $770 billion.

This article will focus on two of these stocks, Meta Platforms and Alphabet, which are currently seeing significant price dips of 19% and 21% respectively. Here’s why these stocks may present valuable buying opportunities.

1. Investing in Meta Platforms

Meta Platforms, the parent of social networks like Facebook, Instagram, and WhatsApp, connects over 3.3 billion users daily. The company generates its revenue primarily from advertising, meaning that the more ads they display, the higher their income.

As nearly half the global population uses Meta's apps, signing up new users is becoming a challenge. The company's focus has now shifted to enhancing user engagement. By employing artificial intelligence in its algorithms, Meta aims to determine the type of content users prefer, thus providing more engaging experiences to keep users online longer.

According to CEO Mark Zuckerberg, this strategy led to an 8% year-over-year increase in time spent on Facebook and a 6% increase for Instagram by late 2024. New product introductions also contribute to this enhanced engagement; for example, they launched an AI chatbot called Meta AI, which is available across all their applications.

This chatbot allows users to pose various questions and can even partake in group conversations to help address queries. At the close of last year, Meta AI boasted over 700 million active users, making it one of the world's most utilized chatbots.

Meta's foundational Llama models are open-source and have been downloaded over 600 million times. This community backing helps in rapid bug fixing and enhancements. Zuckerberg has indicated that the forthcoming Llama 4 model could rival top closed-source AI models, potentially positioning Meta AI as a leading chatbot, which would attract new users and increase revenue.

In the previous year, Meta reported record revenues of $164.5 billion, representing a 22% increase from 2023, while its earnings per share (EPS) rose by 60% to $23.86. This places its stock at a price-to-earnings (P/E) ratio of 24.7, making it one of the more affordable options among the Magnificent Seven stocks, second only to Alphabet.

Given its strong financial performance and leadership in the AI sector, the recent 19% drop in Meta’s stock price could provide an attractive buying opportunity for long-term investors.

2. Investing in Alphabet

Alphabet is the parent company of Google, YouTube, and Waymo, the self-driving car subsidiary. Google's search engine drives over half of Alphabet's total revenue by selling advertising spaces to businesses.

AI chatbots pose a challenge to Google Search's dominance, offering users a new and convenient way to access information. To maintain its stronghold, Alphabet is heavily investing in AI technology. Last year, they introduced AI Overviews, which enhance search results by combining text, images, and links, providing users with detailed AI-generated answers.

Alphabet claims that these Overviews monetize effectively, similar to traditional search ads, and users are actually searching more frequently as they have more ways to refine their queries. This increase in user activity is bolstered by Alphabet’s proprietary Gemini large language models, which power both the enhanced search and a standalone chatbot.

Additionally, Google Cloud has emerged as the fastest-growing part of Alphabet's business, attracting clients looking for cutting-edge computing solutions and AI technology. In late 2024, Google Cloud customers utilized eight times more AI training and processing capacity than they did a year and a half prior, and overall customers of the Vertex AI platform grew fivefold last year.

With Alphabet’s various AI initiatives causing notable growth, its current 21% price drop following positive developments could signal a buying opportunity for investors. The company saw its EPS rise by 38% in 2024, reaching $8.04, placing its stock at a P/E ratio of 20.2. This makes it significantly cheaper than the overall Nasdaq-100 index, which trades at a 29.8 P/E ratio.

Though Alphabet faces regulatory challenges, the recent drop in its stock price may still provide a compelling long-term investment option.

It should be noted that the author has no positions in any stocks mentioned. This article reflects a neutral opinion without ties to any specific investment site.

Nasdaq, Stocks, Investment