A Tax-Free Savings Account (TFSA) allows Canadians to grow their investments tax-free and even withdraw them tax-free. While the account is simple, there is fine print in the tax benefit when it comes to U.S. investments. TFSA allows you to invest in stocks trading on the NYSE and NASDAQ. However, any dividend paid from US stocks will be subject to 15% withholding tax even if they are invested through a TFSA.
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Should you invest in US stocks through a TFSA?
Even though dividends are taxable, US stocks are a great TFSA investment. The NYSE and NASDAQ are the biggest stock exchanges in the world, with most global stocks trading there. Whether you want to invest in China’s electric vehicle boom or Taiwan’s semiconductor manufacturing edge, the NYSE offers you the right stocks. And let us not forget the capital gain from US stocks is still tax-free in a TFSA.
Which US stocks are ideal for a TFSA?
Since capital gains are not taxable in a TFSA, high-growth stocks are ideal for a TFSA. NASDAQ is the heart of all new technology and innovation, be it the mobile revolution, e-sports, crypto mining, cloud computing, artificial intelligence (AI), or self-driving cars.
Tech ETF
The first step is to invest in a Nasdaq ETF, like the iShares NASDAQ 100 Index ETF (CAD-Hedged) (TSX:XQQ). It replicates the NASDAQ 100 Index and gives you the advantage of overall market growth. The ETF surged 130% during the 2021 tech bubble from March 2020 to November 2021. It also surged 120% in the AI growth cycle from 2023 to date.
The ETF’s top three holdings are in Nvidia, Apple, and Microsoft, which together form a broad tech supply chain from chips to consumer devices to software and cloud. No matter the tech disruption, they will be at the core because of their placement in the technology space. The XQQ ETF will help you get exposure to different tech booms. If you invested $10,000 in the XQQ ETF five years ago, it would be $17,424 now.
AI stocks
2025 was the year of the AI boom, with millions of dollars of AI deals being signed. Several high-end AI collaborations were announced. Several companies invested in OpenAI, including SoftBank, Advanced Micro Devices, and Nvidia. One of the boldest partnerships was with AMD. OpenAI agreed to buy AMD data centre chips, and AMD offered its 10% stake to OpenAI. This has raised the risk of the deal.
However, I suggest investing in memory chip stock Micron Technologies (NASDAQ:MU) and Ethernet switchmaker Broadcom. China’s DeepSeek proves that you don’t need a high-performing Nvidia graphics card to run large language models (LLMs). Companies are now asking for a return on investment (ROI) from AI. That is questioning the investment in expensive GPUs and power-hungry data centres. Thus, companies are looking for more affordable chips.
But one thing that will always be in demand is memory chips and Ethernet switches. Micron Technology’s stock jumped 333% in the last 12 months as the AI infrastructure boom has created a memory chip shortage. Memory chips are commoditized products and have seen supply shortages in the past. These shortage cycles last two to three years, as that is the time it takes to build a new fabrication facility.
It has only been six months since the supply shortage. Even though Micron stock is trading at its all-time high, there is more upside from the cyclical rally. It’s not just AI data centres but everything from defence products to consumer products that need memory chips. Every technology cycle, from mobile to cloud to gaming to self-driving cars, is increasing memory chip demand, making Micron a stock to buy and hold.
