The Nasdaq Is Down 8% From Its High. These Are the Tech Stocks I'd Buy First.

As geopolitical tensions persist and some fear a looming recession, many investors are withdrawing funds from tech stocks and allocating them to perceived safer investments. That’s partly why the tech-heavy Nasdaq Composite is down about 8% from its all-time high (as of writing), which it hit late last year, lagging the two other major U.S. market indexes over this period. However, this has created attractive opportunities to invest in quality tech stocks on the dip. Here are two that should be on investors’ lists: Microsoft (MSFT 1.07%) and Meta Platforms (META 8.00%).

1. Microsoft

Microsoft’s shares began to decline before any of the recent volatility surrounding geopolitical tensions. Investors are increasingly worried that its runaway investments in artificial intelligence (AI) won’t pay off, and according to many, it hasn’t in recent quarters, with Microsoft Azure growth coming in strong — but not quite as strong as some expected. But those bullish on AI should double down on Microsoft, especially at current levels. Here are three reasons why.

First, as CEO Satya Nadella said: “We are in the beginning phases of AI diffusion and its broad GDP impact. Our TAM [Total Addressable Market] will grow substantially across every layer of the tech stack as this diffusion accelerates and spreads.”

This large opportunity could be a massive tailwind for Microsoft for years to come as the company continues to integrate AI across its business. Microsoft’s Copilot, an AI-powered virtual helper of sorts that includes video and image generation capabilities, is now part of Microsoft 365. Microsoft offers a wide range of other AI products and services through the cloud, including some of the leading large language models.

Second, despite what appears to be heavy spending, the tech giant generates plenty of cash and has even more to pour into R&D to remain one of the leaders in AI. Microsoft generated $77.4 billion in free cash flow over the past 12 months. Third, Microsoft’s shares currently look fairly valued when compared to its peers in the Magnificent Seven. Microsoft’s forward price-to-earnings (P/E) ratio is in the bottom half compared with these leading tech companies.

MSFT PE Ratio (Forward) data by YCharts

Now, the stock could remain volatile in the short-term, especially if we officially enter a recession, geopolitical issues intensify, or other headwinds arise. However, those in it for the long haul should seriously consider purchasing Microsoft’s shares at current levels.

2. Meta Platforms

Meta Platforms also hasn’t performed so well in recent months, despite solid financial results. The company’s shares did jump following its fourth-quarter earnings, as revenue and earnings continue to grow rapidly, but that has been overshadowed by fears that heavy AI-related investments will eventually erode profits. However, Meta Platforms is already benefiting from AI. The company has significantly increased engagement across its websites and apps thanks to AI-powered algorithms that recommend appropriate content to its users and keep them glued to their screens.

This is more than just time spent on the company’s websites, which is already important. But it also grants Meta Platforms plenty of data on its users’ preferences and habits, which can be used to craft targeted ads. This is why Meta Platforms is one of the leading digital ads companies in the world. And the tech leader is still working to improve its ad business, notably through AI-powered tools that simplify the ad launch process and improve ad performance.

True, Meta Platforms’ large investments in the metaverse did not yield the results the company expected, and it had to pivot to other areas. But Meta Platforms’ ability to bounce back from that and still perform as well as it is today actually highlights the strength of the company’s business. Lastly, the stock also looks more than fairly valued, with a forward P/E that is lower than every single one of its peers in the Magnificent Seven. Meta Platforms might just be a great buy right now.