It’s hard to ignore the buzz surrounding Nvidia as its revenue and earnings soar due to its cutting-edge GPU technology tailored for the AI industry. However, like a rollercoaster, the semiconductor industry’s historically cyclical nature raises concerns about Nvidia’s long-term sustainability. Then, there’s the looming threat from bans on advanced chip sales to China. These factors all combine to create a level of risk that might be too hot for some investors to handle. Despite Nvidia’s potential for robust long-term returns, another AI stock on the block presents a risk-reward profile that’s attracting a lot of attention. Enter Microsoft, a top contender in the AI race that is making a strong case for itself. Let’s dive into why Microsoft stands out as the smartest AI stock to buy right now.
Microsoft’s AI Dominance
Recently surpassing Apple as the world’s largest company by market capitalization, Microsoft has been constantly vying with the tech giant for the coveted top spot. Bolstered by dependable businesses and formidable competitive moats, Microsoft is poised to maintain its position as one of the top players in AI growth stocks over the next decade. Weathering macroeconomic headwinds and one-time tax liabilities, Microsoft sustained sales growth and robust profits, with positive performance momentum picking up speed once again. With a 13% year-over-year revenue growth, accompanied by a 25% increase in operating income and a 27% surge in net income, Microsoft is on a solid trajectory. Central to its soaring profitability is Microsoft’s Azure cloud infrastructure platform which is at the heart of its AI surge. The company’s commitment to integrating AI into its operating systems and productivity software, along with pioneering efforts in the AI personal assistant space, positions Microsoft as a frontrunner in every aspect of the AI industry. Not to mention, the company has ventured into designing its own AI chips and owns a substantial stake in OpenAI, further solidifying its positioning as an AI powerhouse.
Data source: Microsoft. Chart by author.
Profits and Dividends
Aided by robust profitability, Microsoft has paid a dividend since 2003 and raised its payout annually for 18 years straight. While the current yield may not entice investors looking for immediate substantial payouts, it is the promise of consistent growth that makes it an attractive dividend stock. As Microsoft’s share price is propelled by the profits generated from AI and its various endeavors, it is set to further increase the amount of cash returned to shareholders through dividends. Thus, Microsoft not only offers strong business momentum and untapped AI opportunities but also an added income component through dividends. It’s a winning combination that makes Microsoft a top contender for investors seeking robust AI stocks.
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Keith Noonan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.