Macroeconomic headwinds in 2022 caused a stock market sell-off that affected countless industries. The Nasdaq Composite index tumbled 33% throughout the year. Tech stocks were some of the hardest hit, as reductions in consumer spending meant multiple quarters of dismal earnings.
However, excitement over high-growth industries like artificial intelligence (AI) has triggered a recovery in 2023 and illustrated why a market downturn could be the best time to make a long-term investment in tech stocks. The Nasdaq Composite has surged 41% year to date, rewarding those who either held or bought at the bottom.
As a result, it's not a bad idea to get familiar with some of the best companies to invest in during a sell-off and be prepared to strike when the time is right. Here are three stocks you can confidently buy after a market downturn.
1. Nvidia
According to research firm Gartner, PC shipments fell 16% year over year in 2022. Spikes in inflation led to reductions in consumer spending on tech, with chipmakers hit hard. As a result, shares in Nvidia (NVDA 6.18%) plunged 50% in the 12 months leading to 2023.
However, the company came back better than ever this year, with its stock up 231% since Jan. 1 as its earnings hit new heights. The company profited from a boom in AI, which sent chip demand soaring. Nvidia's graphics processing units (GPUs) have become the preferred hardware for AI developers everywhere, with the company's revenue climbing 206% year over year in its most recent quarter (third quarter of fiscal 2024).
Data by YCharts
As a leading chipmaker, Nvidia supplies its GPUs to markets across tech. The company is an excellent option in a market downturn, as its stock will likely soar over the long term.
Additionally, the chart shows Nvidia's price-to-earnings ratio (P/E) and price-to-free cash flow ratio have both plunged since July, meaning its shares are currently trading at their cheapest position in months.
2. Apple
As the world's most valuable company, with a market cap above $3 trillion, Apple's (AAPL -0.35%) stock rarely goes on sale. In fact, the table shows the iPhone maker outperformed many of the biggest names in tech throughout 2022. Apple's performance amid economic challenges proved its resilience, as it became a haven for many investors.
Data by YCharts
In 2023, Apple has once again showcased its consistency. Macro headwinds have caught up with the company, as pullback from consumers led to repeated declines in product sales and a 3% year-over-year dip in revenue for fiscal 2023. Yet loyal investors continued to believe in its long-term growth, with Apple's stock up 52% year to date.
The company's nearly $100 billion in free cash flow, popular range of products and services, and considerable brand loyalty from consumers make it challenging to question Apple's ability to flourish over the next five to 10 years. Apple remains the biggest name in consumer tech and the home of a digital services business that posted revenue growth of 9% this year.
Services are another reason you can confidently invest in the tech giant, with the App Store and platforms like Apple TV+ hitting profit margins of more than 70%.
Moreover, Apple's stock has risen 377% over the last five years. Even if the company delivers half that growth over the next five years, it will still more than double the stock growth of competitors Amazon or Alphabet since 2018. As a result, a market downturn could be the perfect time to invest in this tech company and buy its stock at a bargain.
3. Microsoft
Like Apple, Microsoft's (MSFT 1.82%) stock often trades at a premium. However, years of consistency and stellar gains make it worth its high price tag, especially in a sell-off. The company has become a tech behemoth, with brands such as Windows, Office, Azure, and Xbox granting it lucrative positions in multiple industries.
Shares in Microsoft gained 55% this year after tumbling amid last year's market downturn. The tech giant has rallied Wall Street by heavily investing in AI. A close partnership with ChatGPT developer OpenAI allowed Microsoft to introduce AI upgrades across its product lineup as it seeks to become the go-to for consumers and businesses everywhere seeking ways to integrate AI into their daily workflows.
Microsoft has significant potential in AI, with the market projected to develop at a compound annual growth rate of 37% until at least 2030. As a result, leading positions in productivity software and cloud computing could see Microsoft profit significantly from the sector as it expands its AI offerings.
Data by YCharts
This chart shows Microsoft's forward P/E and price-to-free cash flow are high at 33 and 44, indicating its stock isn't exactly a bargain. However, both figures are significantly lower than those of other companies active in AI. Microsoft is a company you can confidently invest in at almost any time, but especially during a market downturn.
