Exploring Investment Opportunities in Microsoft and Meta Amid Market Uncertainties
As of market close on April 22, each “Magnificent Seven” Stock has experienced negative price returns for 2025. Within this group of major technology stocks, Microsoft (NASDAQ: MSFT) and Meta Platforms (NASDAQ: META) reported the smallest declines of 13% and 14.5%, respectively.
Both companies are set to report earnings for the first calendar quarter of 2025 on April 30. This article will explore reasons why Microsoft and Meta may still present worthwhile investment opportunities amidst ongoing market volatility.
Short-term Challenges for Microsoft and Meta
Currently, the primary challenge facing technology companies appears to stem from new tariff policies. Both Microsoft and Meta are investing heavily in AI infrastructure, utilizing Nvidia chips and focusing on data center upgrades.
The complexity of goods and materials affected by these tariffs may increase operational costs for Microsoft and Meta, especially regarding their AI infrastructure initiatives. Furthermore, it remains uncertain how companies plan to adapt to potential tariff impacts on operations.
This uncertainty could lead to reduced spending in crucial areas, including cloud computing, cybersecurity, and advertising, which could hinder sales growth for both Microsoft and Meta. A decline in sales alongside rising costs would significantly affect profitability.
To counteract shrinking profits, the companies might consider scaling back their AI capital expenditures. However, such a move may displease investors, as AI has become integral to the growth strategies of both firms. Slowing AI investments in favor of immediate profit may not resonate well with stakeholders.
Long-term Outlook for Microsoft
The ongoing downturn in the tech sector presents an opportunity to consider investing in high-quality companies. Presently, Microsoft’s forward price-to-earnings (P/E) ratio of 28 is slightly below its three-year average.
MSFT PE Ratio (Forward) data by YCharts
Despite tighter controls on IT budgets, many businesses will likely seek cost savings in non-critical areas, leaving essential services like cloud computing and cybersecurity less affected.
While I do not expect outstanding results from Microsoft in the upcoming quarter, I remain cautiously optimistic about Azure’s cloud growth demonstrating some resilience. Additionally, Microsoft’s diverse ecosystem—including personal computing, social media (LinkedIn), and gaming—positions it relatively well against potential economic slowdowns.
Long-term Outlook for Meta
Some may argue that Meta faces significant pressure due to its reliance on two primary growth sources: advertising and the metaverse. Although the company’s metaverse efforts have yet to achieve scale or profitability, the more competitive digital advertising landscape poses challenges from established players like Alphabet and TikTok.
However, Meta’s ability to maintain relative price stability compared to its peers may signal investor confidence in its growth outlook. Additionally, I believe tariffs will have a minimal impact on Meta’s overall business. While there may be temporary revenue growth slowdowns, I do not foresee lasting negative effects.
Meta benefits from strong platforms such as Facebook, WhatsApp, and Instagram, creating significant opportunities to monetize its extensive user base. AI advancements may also unlock additional growth avenues in the consumer market.
META PE Ratio (Forward) data by YCharts
Meta currently trades in line with its three-year average forward P/E. Despite substantial strides in AI over the past three years, investors appear to undervalue this potential growth.
Long-term Investment Strategy
Investors should recognize that tariff policies could change unexpectedly. Furthermore, even if current trade negotiations contribute to an economic slowdown, such cycles tend to be temporary.
In light of ongoing market uncertainty, growth stocks like Microsoft and Meta continue to face sell-offs. Nevertheless, I believe these stocks are trading at reasonable valuations, offering a chance for savvy investors to take advantage of buying opportunities and prepare for long-term growth.
Investment Considerations for Meta Platforms
Before investing in Stock in Meta Platforms, it’s worth noting:
According to recent analyses, Meta Platforms did not make a list of 10 best stocks to buy now. Alternatives on that list may yield higher returns in coming years.
For instance, consider Netflix, which was recommended on December 17, 2004. A $1,000 investment then would be worth $594,046 today!
Similarly, an investment in Nvidia on April 15, 2005, would have reached $680,390!
Note that Stock Advisor’s average return stands at 872%, significantly outperforming the S&P 500’s 160%. Keep an eye on the latest top 10 list by joining Stock Advisor.
*Stock Advisor returns as of April 21, 2025
The opinions expressed in this article do not necessarily reflect those of Nasdaq, Inc.
