With 2022 about to come to an end, it is safe to say that this has been a year investors would like to forget. It has been a terrible one for the stock market, as evidenced by the steep 30% decline in the Nasdaq Composite index so far this year.

The good news for investors is that there's potential for a bull market next year as slowing inflation could lead the Federal Reserve to ease the pace of interest rate hikes. That makes now a good time to consider a beaten-down Nasdaq stock with the potential to take off in 2023. At the same time, investors should steer clear of certain Nasdaq names that may continue to struggle even in a bull market.

Micron Technology (MU 2.46%) and Microsoft (MSFT 0.04%) have borne the brunt of the Nasdaq's drop this year. Micron is down 41% in 2022 and shares of Microsoft have dropped 27%. One of these two Nasdaq stocks is likely to take off in the new year and the other one could continue to struggle.

Let's see which one of these tech stocks investors should consider buying hand over fist and which one they should be avoiding like the plague.

Micron Technology is going to enter the new year on the back foot

The decline in the demand for memory chips this year really hit Micron stock. Gartner estimates that sales of dynamic random access memory (DRAM) chips that are used in personal computers (PCs), smartphones, workstations, and data centers could decline 2.6% in 2022 to $90.5 billion. That's not surprising as sales of both smartphones and PCs dropped this year.

DRAM chips produced 72% of Micron's total revenue in the fourth quarter of fiscal 2022 (for the three months ending Sept. 1). This explains why lower DRAM shipments combined with a drop in average selling prices led to a 20% year-over-year decline in the chipmaker's quarterly revenue to $6.6 billion. The memory specialist's non-GAAP (adjusted) earnings fell to $1.45 per share from $2.42 per share in the prior-year period as the adjusted operating margin shrank to 25% from 37.1% in the prior year.

The new year could be even worse for Micron. That's because Gartner sees DRAM industry revenue declining at a greater pace of 18% in 2023 to $74 billion. Meanwhile, the NAND flash memory business that produced 25% of Micron's revenue last quarter is also anticipated to turn negative next year. Gartner estimates a 13.7% decline in NAND flash industry revenue to $59 billion following a 4.4% increment in 2022.

Not surprisingly, Micron's guidance for the first quarter of fiscal 2023 suggests it is about to have a terrible year. The chipmaker guided for $4.25 billion in revenue and $0.07 per share in earnings, which would translate into a huge decline over the prior-year period's revenue of $7.69 billion and adjusted earnings of $2.16 per share.

Even worse, analysts forecast a 40% drop in Micron's top line in fiscal 2023. Its earnings are expected to shrink to just $0.25 per share from fiscal 2022's figure of $8.35 per share. These numbers suggest that Micron could head lower in the new year, which is why investors should steer clear of this struggling tech stock.

Microsoft could step on the gas

Microsoft's woeful stock market performance in 2022 means that investors can buy this technology giant on the cheap right now. Microsoft stock is trading at 26 times earnings, a discount to its five-year average multiple of 37. Investors may not want to let such an opportunity slip by considering that Microsoft's growth is expected to pick up the pace.

In the first quarter of fiscal 2023, which ended on Sept. 30, Microsoft clocked $50.1 billion in revenue, an increase of 11% over the year-ago period. The tech giant's revenue was up 16% year over year in constant currency terms. Analysts expect Microsoft to finish the fiscal year with 7% revenue growth, but fiscal 2024 is expected to be stronger with a 13% spike in revenue to $241 billion.

What's more, the company's momentum is anticipated to continue in fiscal 2025 as well.

MSFT Revenue Estimates for Current Fiscal Year Chart

MSFT Revenue Estimates for Current Fiscal Year data by YCharts

It is impressive to see Microsoft thriving at a time when sales of personal computers are declining and the video gaming market is not in the best of health. Microsoft's reliance on cloud computing for a huge chunk of its revenue helped it offset the weakness in other markets.

More specifically, Microsoft's revenue from the intelligent cloud segment increased an impressive 20% year over year last quarter to $20.3 billion, accounting for 40% of the company's top line. Synergy Research Group estimates that Microsoft controlled 21% of the cloud infrastructure market in the third quarter of 2022. The market research firm also added that the cloud infrastructure service market in which Microsoft operates generated $217 billion in revenue in the trailing 12 months that ended in September.

Mordor Intelligence forecasts that the cloud infrastructure services market could clock annual growth of 19% through 2026, suggesting that Microsoft's biggest business is on track to become bigger in the long run. Meanwhile, a recovery in the video gaming market should help Microsoft's Xbox business turn around in the long run.

Microsoft's revenue from the Xbox content and services business was down 3% year over year last quarter. Newzoo predicts that the global gaming market is on track to contract 4% this year to $184.4 billion, which explains the weakness in Microsoft's gaming business. But by 2025, the global games market is expected to generate $211.2 billion in revenue.

This secular growth opportunity combined with Microsoft's steps to corner a bigger share of the video gaming market should give investors optimism about the health of the gaming business in the long run.

In all, Microsoft could see better days in 2023 and beyond thanks to the catalysts discussed above, which is why savvy investors should consider buying it given the attractive valuation.