Top Tech Stocks: Taiwan Semiconductor and Microsoft Shine in AI Boom
The technology sector is a hub for some of the world’s most innovative companies. Historically, it has yielded major winners in the stock market. Currently, leading firms driving the growth of artificial intelligence (AI) are reporting strong financial results, suggesting promising returns for long-term investors.
In this article, we focus on two key players in the semiconductor and software industries that could enhance your investment portfolio over time.
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1. Taiwan Semiconductor Manufacturing
Taiwan Semiconductor Manufacturing (NYSE: TSM) has a proven history of market-beating returns. Its profitability and extensive customer base position it well to capitalize on the soaring demand for AI chips. Currently, TSMC’s spending plans indicate significant growth potential.
With over 65% share of the global foundry market, as reported by CounterPoint Research, TSMC plays a critical role in the global supply chain. It produces chips for industry leaders like Nvidia, Advanced Micro Devices, and Broadcom.
Last quarter, TSMC’s revenue surged by 35% year-over-year. Management projects a continued growth trajectory with an expected 38% revenue increase for the second quarter. The company is investing billions to expand its manufacturing capabilities while maintaining a robust profit margin of 43%.
While tensions between Taiwan and China pose geopolitical risks, TSMC is proactively working to expand its global footprint. The company is investing $165 billion in a new facility in Arizona and anticipates that 30% of its most advanced chips will be produced there. Plans are also underway for manufacturing expansions in Japan and Europe.
According to Wall Street consensus, TSMC’s earnings are expected to grow at an annualized rate of 21% over the coming years. The stock currently trades at a reasonable earnings multiple of 19 based on this year’s estimates, reflecting its historical valuation.
2. Microsoft
Microsoft (NASDAQ: MSFT) is another strong candidate in the AI investment landscape. The company achieved nearly $100 billion in net profit last year, growing at double-digit rates, and is channeling those profits into data centers that support the increasing demand for cloud and AI services.
Microsoft reported solid earnings for its fiscal third-quarter ending March. Revenue and earnings saw increases of 15% and 19%, respectively, when adjusted for constant currency over the same quarter last year. The company continues to expand its data centers across ten countries, driving profitable growth.
As the second-leading cloud services provider, Microsoft is gaining market share, particularly in its Azure cloud services, which reported a remarkable 35% annual growth rate. Demand continues to rise, fueled by companies across various sectors.
Additionally, Microsoft is enhancing its AI capabilities, particularly through Microsoft 365 Copilot, which leverages extensive data to offer insights and expertise across diverse subjects.
This tech giant is well-positioned to meet the escalating demand for AI solutions. Analysts predict a 12% annual growth in Microsoft’s earnings, which would likely provide satisfactory returns for investors in the coming years.
Should You Invest $1,000 in Taiwan Semiconductor Manufacturing Right Now?
If you’re considering investing in Taiwan Semiconductor Manufacturing, it’s important to take into account some factors:
The Motley Fool analyst team has recently identified the 10 best stocks for immediate investment, and Taiwan Semiconductor Manufacturing is not included in that list. The selected stocks are anticipated to yield substantial returns in the future.
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John Ballard holds positions in Advanced Micro Devices and Nvidia. The Motley Fool has positions in and recommends Advanced Micro Devices, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool also recommends Broadcom and holds options on Microsoft. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are solely those of the author and do not necessarily reflect the views of Nasdaq, Inc.
