The Nasdaq Just Hit Correction Territory: Buy This Unstoppable Stock at a Discount

Down over 13% from its all-time high (achieved in December), the Nasdaq Composite is officially in a correction, which is defined as a drawdown of at least 10%.

After falling by 4% on Monday, the Nasdaq Composite ticked down again on Tuesday as the broader market sell-off intensified across the major indexes. At the time of this writing, the technology sector is down over 10% year to date. Major tech stocks like Microsoft (MSFT +1.69%) and Apple are down 10% and 12%, respectively. Nvidia has tumbled 19% year to date.

Here's why Microsoft is a particularly compelling growth stock to buy now.

Image source: Getty Images.

Fair companies at wonderful prices aren't always worth buying

Buying stocks during a major sell-off is never easy, especially when the sell-off happens fairly quickly. The Nasdaq is down 12% in the last month, which indicates how rapid the sell-off has been.

During times of intense volatility, it can be tempting to scoop up shares of companies that have sold off big-time. However, a better way to navigate a sell-off is to buy stocks that you believe in long-term. So much so, that you're OK with them falling even more.

Every investor wants a great deal. So, buying shares in an excellent company at a low price is preferred. However, assuming you can buy the dip at the best time possible is foolish. Being roughly right is more than good enough. In fact, history shows that buying shares in great companies at bad times is better than investing in bad or mediocre companies at phenomenal prices. Or as Warren Buffett famously said, "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

Not every stock that is selling off is a wonderful company. Some stocks saw their valuations stretched thin and probably ran too far ahead of fundamentals. But other stocks, like Microsoft, are wonderful companies. And Microsoft is already at a fair price, making it an especially compelling stock to buy now.

A wonderful company at a fair price

Microsoft sports a price-to-earnings (P/E) ratio of 30, which is below its 10-year median P/E of 32.5. So right off the bat, it's clear the market is pricing Microsoft at less than its historical average valuation, even though the business has changed drastically over the last decade.

Microsoft is arguably the most balanced tech stock on the market. It is involved in hardware, personal computer products, software through its legacy Microsoft 365 suite, Teams, platforms like LinkedIn and GitHub, and cloud infrastructure through Microsoft Intelligent Cloud and Azure. The company is heavily investing in artificial intelligence (AI) to drive efficiency across existing platforms and build advanced data center and AI services for its cloud clients. Microsoft can afford these investments due to its high free cash flow and strong balance sheet, which has more cash, cash equivalents, and short-term investments than long-term debt.

In sum, buying Microsoft stock is a catch-all way to invest in AI, cloud computing, software, and hardware through a company with the financial muscle to invest through the cycle.

Microsoft isn't the kind of company that will overextend its spending and get strapped for cash. So it is well suited to endure a prolonged slowdown in some of its end markets.

Microsoft is far from a one-trick pony

One of the most impressive aspects of Microsoft's business is its combination of revenue growth across all segments and overall margin expansion. Microsoft's most recent earnings report was for the second quarter of fiscal 2025. Here's a look at how that quarter stacks up against the first half (1H) of the last two fiscal years.

Data source: Microsoft.

AI efforts have improved margins in each business segment. It's especially impressive to see how large Microsoft's cloud business has become. The segment is now nearly as big as productivity and business processes (which includes Microsoft 365, Windows, Teams, commercial software products, LinkedIn, and more).

Microsoft could face a near-term slowdown

Market sell-offs are the perfect time to review the reason why you own a stock, revisit the investment thesis, and address potential risks. Microsoft is a phenomenal business with a solid growth rate, diversified business model, rock-solid balance sheet, reasonable valuation, a growing dividend, and ample free cash flow left over to repurchase stock. So, regarding moats, Microsoft's is about as wide and deep as it gets.

Still, the company isn't immune from risks. The biggest risk at this time is probably the impact of its AI investments. Microsoft's bold plans to spend $80 billion on AI data centers and cloud-based applications in fiscal 2025 is no small feat -- even for Microsoft. Already, we've seen the company pull back on stock repurchases to fund its AI efforts.

Buying Microsoft now is a bet that these investments are worth the steep price. A pullback in spending from Microsoft's clients could make it harder to sell AI services. However, it's difficult to see a scenario where there would be a permanent pullback on demand for AI tools for consumer software products and cloud solutions.

Microsoft is worth holding through periods of volatility

Microsoft is a fairly safe stock to buy now, even if the Nasdaq correction evolves into a full-fledged bear market. Microsoft's earnings growth could slow down for a few years, and the stock would still be a decent value. Microsoft isn't priced for perfection despite the company's excellent results.

It's not much, but it's worth mentioning that the company does sport a 0.9% dividend yield with 15 consecutive years of boosting its payout. So, Microsoft has a bit of passive income opportunity.

The longer the stock price languishes, the higher Microsoft's yield will become -- especially considering the company will likely continue increasing its dividend every year going forward. Other megacap growth stocks like Apple, Meta Platforms, and Alphabet yield just 0.5% or less and Amazon and Tesla don't even pay dividends.

Add it all up, and Microsoft is a stock you can count on long-term, making it the perfect candidate to buy during a correction.