The last decade and a half has been dominated by tech giants in verticals such as social media, e-commerce, cloud computing, smartphones, online streaming, digital advertising, and enterprise software. In this period, we have seen big-tech companies such as Apple, Nvidia, Meta Platforms, Alphabet, Microsoft, Amazon, and Netflix deliver market-thumping gains.
In the next decade, there is a good chance for companies part of the artificial intelligence (AI) race to deliver similar returns to long-term investors. Keeping this in mind, here are two AI stocks that can turbocharge your savings and help you accelerate your financial goals in the upcoming decade.
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Taiwan Semiconductor stock
Valued at US$881 billion by market cap, Taiwan Semiconductor (NYSE: TSM) is among the largest companies in the world. Taiwan Semiconductor is a chip manufacturer and is positioned to gain big as demand for advanced AI-powered chips should continue to surge in the future.
In the second quarter (Q2) of 2024, the company reported revenue of US$20.82 billion, an increase of 40.1% year over year. Its adjusted earnings of US$1.48 per share was higher than estimates of US$1.43 per share and rose 36.3% compared to the year-ago period.
During the earnings call, TSM chairman and chief executive officer C.C. Wei attributed top-line growth to strong demand for its three-nanometre (nm) and five-nm chips, which was offset by lower smartphone sales.
The company also warned that robust AI demand has stretched chip supplies, which is unlikely to ease until 2026. Taiwan Semiconductor is the largest chip manufacturer globally, and its client list includes the world’s largest companies, including Apple and Nvidia.
TSM’s wide economic moat provides it with pricing power, resulting in operating margins of over 40%. Moreover, its growth story is far from over, given that TSM forecasts capital expenditures to range between US$30 billion and US$32 billion, a majority of which will be allocated towards advanced technologies.
TSM also pays shareholders an annual dividend of US$2.2 per share, indicating a forward yield of 1.3%. However, these payouts have risen by 20% in the last 12 months.
Priced at 26 times forward earnings, TSM stock is quite cheap, given analysts expect earnings to rise by 21.5% annually in the next five years.
Broadcom stock
Another semiconductor giant, Broadcom (NASDAQ: AVGO), has returned close to 3,000% to shareholders in the past decade. The company has two primary business segments: semiconductor solutions and infrastructure software. It generates around 60% of revenue from the semiconductor business and the rest from infrastructure solutions.
In fiscal Q2 of 2024, Broadcom’s semiconductor business reported revenue of US$7.2 billion, up 6% year over year. This growth might seem quite tepid compared to Nvidia, but investors should note that the AI revolution is still in its early stages. Comparatively, infrastructure software sales almost tripled to US$5.3 billion due to its big-ticket acquisition of VMware.
Broadcom pays shareholders an annual dividend of US$2.10 per share, indicating a yield of 1.3%. Further, these payouts have risen by over 30% annually in the past decade. TSM stock might seem expensive at 34 times forward earnings, but it trades at a discount of 19% to consensus price target estimates.
