2 Supercharged Artificial Intelligence Stocks with Room to Run

Prefer it or not, the world is barreling toward a latest reality — one by which artificial intelligence (AI) will play a vital role in our every day lives, perhaps reshaping the material of society in the method.

How should investors position themselves for this technological inflection point? While Nvidia has been the poster child for AI investing, Microsoft (NASDAQ: MSFT) and Taiwan Semiconductor Manufacturing (NYSE: TSM) also offer a direct line to this transformative trend.

Image source: Getty Images.

1. Microsoft: A top AI infrastructure play

Microsoft’s strategic partnership with OpenAI has positioned the tech behemoth on the epicenter of AI innovation. This collaboration has already yielded significant results, with AI integration enhancing Microsoft’s product suite across the board.

Despite a formidable 21% year-to-date increase in share price, Microsoft’s stock still appears to have considerable runway ahead. That said, the tech giant’s stock currently trades at 34 times forward earnings, a premium valuation that may give some investors pause.

Nonetheless, this premium seems well justified in light of Microsoft’s noteworthy top-line growth forecast for 2025. With revenue estimated to rise by 14.3% in 2025, Microsoft is defying the standard slowdown expected of mature tech firms.

In truth, this double-digit revenue growth rate is nothing wanting spectacular for an organization with a $3.4 trillion market cap. It’s a transparent indicator that Microsoft’s AI-driven strategy is paying dividends, quite literally.

Speaking of dividends, income-focused investors shouldn’t overlook Microsoft’s potential on this area. At first glance, the present yield of 0.66% may appear modest. Nonetheless, it’s the expansion rate of this dividend that really sets Microsoft apart.

Over the past five years, the corporate has increased its dividend at a compound annual growth rate of 10.6%. To place this in perspective, this growth rate outpaces the typical 6% growth rate of the world’s top 60 dividend growth stocks (creator’s own data).

This mix of AI-driven growth and generous dividend increases makes Microsoft a compelling option for a big selection of investors. Growth investors can tap into the potential of AI through a well-established, profitable company.

Income investors, alternatively, can profit from a rapidly growing dividend stream that has the potential to significantly boost total returns over time.

2. TSMC: The foundry at the guts of the AI revolution

Taiwan Semiconductor Manufacturing won’t be a household name, but it surely’s the backbone of the AI hardware revolution. Because the world’s largest contract chipmaker, TSMC produces the advanced semiconductors that power AI applications for tech giants like Apple and Nvidia.

TSMC’s stock has surged 65.7% 12 months to this point, but it surely stays relatively low cost in comparison with other AI plays, trading at around 27 times forward earnings. For reference, the benchmark S&P 500 trades at roughly 22.6 times earnings.

This attractive valuation for a core AI stock is basically as a consequence of the perceived geopolitical risks related to Taiwan’s complex relationship with China. Nonetheless, TSMC’s wide economic moat, stemming from its dominant position in semiconductor manufacturing and robust relationships with tech leaders Apple and Nvidia, forms a compelling investment case.

Furthermore, the corporate’s ongoing geographical diversification, with latest facilities being inbuilt Japan and Arizona, is step by step mitigating its geopolitical risk.

For income-focused investors, TSMC offers a decent 1.43% dividend yield, adding to its appeal as a value play within the AI space.

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George Budwell has positions in Apple. The Motley Idiot has positions in and recommends Apple, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Idiot recommends the next options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Idiot has a disclosure policy.

2 Supercharged Artificial Intelligence Stocks with Room to Run was originally published by The Motley Idiot

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