When people think of artificial intelligence (AI) investments, they often think of explosive growth stocks. But while these highfliers can add some excitement to your portfolio, they often come with stomach-churning volatility.
Fortunately, there's another way to cash in on the AI boom. A select few businesses are profiting from the soaring demand for AI products and services and passing their surging earnings on to shareholders via dividends. Here are two of the best of these AI dividend stocks to buy right now.
AI dividend stock to buy No. 1: Taiwan Semiconductor Manufacturing
Nvidia shares are on fire, and rightfully so. The semiconductor behemoth's state-of-the-art chips power the most advanced AI applications. But Nvidia just designs those chips. Taiwan Semiconductor Manufacturing (TSM -0.31%) actually builds them.
The company known as TSMC is the global leader in semiconductor foundry services, with a 62% market share, according to the technology research firm Counterpoint. The chipmaker's share of the most cutting-edge chips is even more impressive, with some estimates placing it as high as 90%.
TSMC manufactured 11,895 products for 528 clients in 2023. Key end markets include smartphones, AI-focused computing, Internet of Things (IoT) devices, automotive technology, and consumer electronics. Its customers include many of the titans of the tech world, such as Apple, Nvidia, and Tesla.
TSMC has a symbiotic relationship with its clients. As these ultra-successful companies scale their operations, TSMC grows its business alongside them. These win-win partnerships have helped the chip leader increase its sales and earnings by more than 17% annually since it became a public company in 1994.
This impressive profit growth has fueled strong cash returns to shareholders. TSMC has not reduced its dividend since it began rewarding investors with cash payments in 2004. Its shares currently yield a solid 1.2%.
Better still, TSMC is poised for even stronger growth in the coming years. Its revenue jumped 30% in May, driven by soaring demand for AI chips.
AI dividend stock to buy No. 2: Microsoft
If you'd like to add another dividend-paying AI powerhouse to your portfolio, consider Microsoft (MSFT 0.27%). The tech colossus is one of the most profitable businesses in the stock market today, and the AI boom is set to turbocharge its growth.
Microsoft made a bold move to secure its place as the exclusive cloud computing platform for OpenAI in early 2023. Its multibillion-dollar investment in the creator of ChatGPT thrust Microsoft into the vanguard of the AI race, and the software giant is moving aggressively to secure a leading position.
Microsoft worked quickly to add AI-powered "copilots" to its popular software offerings. Copilot for Microsoft 365 can draft emails in Outlook, suggest formulas in Excel spreadsheets, and generate meeting notes in Teams. Corporate adoption of these AI-powered productivity tools is strong. CEO Satya Nadella said during the company's earnings call on April 25 that almost 60% of the Fortune 500 were already using a copilot service.
Additionally, Microsoft's Azure cloud infrastructure platform is expanding at a faster pace thanks to the booming demand for AI services. More than 65% of the Fortune 500 are using the company's Azure OpenAI Service to build custom generative AI applications. A 31% surge in Azure and other cloud services revenue helped to lift Microsoft's total revenue by 17% to $62 billion in the quarter ended March 31.
All told, the tech titan's net profits jumped 20% to $22 billion in its most recent quarter. Wall Street expects the good times to continue. Microsoft is projected to grow its earnings by more than 16% annually over the next half-decade. These AI-fueled profits should lead to bigger dividends and wealth-building total returns for investors who buy Microsoft's stock now.
