Nasdaq Correction: The Best Magnificent Seven Stock to Buy on the Dip Right Now

Core Viewpoint - The Nasdaq Composite index is currently in correction territory, and while this could lead to a bear market, historical trends suggest that such corrections often resolve quickly, presenting opportunities to invest in high-quality companies [1][3][4] Group 1: Market Context - The Nasdaq has experienced six corrections in the past decade, averaging once every 1.67 years, indicating that corrections are a regular part of market behavior [3] - The current pullback may be influenced by upcoming tariffs from the Trump administration, with uncertainty surrounding their potential impact on the market [4][5] Group 2: Investment Opportunities - High-quality stocks from the "Magnificent Seven" group, which includes Microsoft, are considered attractive for long-term investment during this market dip [2][5] - Microsoft is highlighted as a particularly strong candidate due to its robust financial position, including $71.6 billion in cash and$45 billion in debt, alongside significant free cash flow generation [9] Group 3: Microsoft’s Performance and Potential - Microsoft has underperformed relative to its peers recently, with an 8.2% decline over the past year, despite a solid revenue growth of 12% and operating profit growth of 17% last quarter [10][11] - The stock is currently trading at 31.5 times trailing earnings, which is at the lower end of its five-year range, suggesting potential for future outperformance [12] Group 4: Catalysts for Growth - A recent 43% price increase for Microsoft 365 consumer subscriptions could boost revenue, although this segment accounts for only 3% of total revenue [13][14] - The commercial Microsoft 365 products, which represent 31% of total revenue, may also see price increases, especially if the consumer price hike proves successful [15][16] - Microsoft has been a major purchaser of Nvidia GPUs, indicating significant investment in AI, but it is expected to scale its own custom AI chip program, which could lead to cost savings and improved margins [18][23][24] Group 5: Long-term Outlook - The combination of recent underperformance, lower valuation, upcoming price increases, and potential cost savings in AI positions Microsoft favorably for growth in 2025, making it a strong candidate for long-term investors [25]