Microsoft’s strategic partnership with OpenAI has positioned the tech giant at the forefront of AI innovation. This collaboration has bolstered Microsoft’s product suite through advanced AI integration, leading to impressive growth in its stock, which has increased by 21% year-to-date. Despite trading at 34 times forward earnings, a premium valuation, Microsoft’s stock is backed by robust top-line growth forecasts.
Revenue is expected to rise by 14.3% in 2025, defying the slowdown typically seen in mature tech firms. This growth rate is significant given Microsoft’s $3.4 trillion market cap, demonstrating that its AI-driven strategy is yielding substantial results. From an income perspective, Microsoft’s dividend yield of 0.66% might appear modest initially.
However, the company has increased its dividend at a compound annual growth rate of 10.6% over the past five years, surpassing the average growth rate of the world’s top 60 dividend growth stocks. This combination of AI-induced growth and rising dividends makes Microsoft an attractive option for both growth and income-focused investors. Growth investors gain exposure to AI’s potential through a stable, profitable company, while income investors can benefit from a growing dividend stream.
Taiwan Semiconductor Manufacturing Company (TSMC) operates behind the scenes as a crucial player in the AI hardware sector.
Microsoft’s AI partnership boosts strategy
As the world’s largest contract chipmaker, TSMC produces advanced semiconductors for tech giants such as Apple and Nvidia.
Its stock has surged 65.7% year-to-date but remains attractively priced compared to other AI stocks, trading at around 27 times forward earnings. This favorable valuation can be attributed to the geopolitical risks related to Taiwan’s position vis-Ã -vis China. Nevertheless, TSMC’s dominant role in semiconductor manufacturing and its crucial partnerships with tech leaders form a strong investment case.
The company’s efforts to diversify geographically by building new facilities in Japan and Arizona are also mitigating its geopolitical risks. For income-focused investors, TSMC offers a dividend yield of 1.43%, making it a compelling choice in the AI investment space. The company’s blend of essential AI hardware production and growing dividends appeals to a variety of investors looking to tap into AI’s burgeoning impact.
Both Microsoft and TSMC offer promising opportunities for investors interested in AI. Microsoft’s strategic partnerships and growth potential, coupled with its solid dividend performance, make it a strong contender. Meanwhile, TSMC’s crucial role in AI hardware and attractive valuation create a compelling investment case, despite geopolitical concerns.
These stocks present diverse avenues for capitalizing on the future of AI technology.
