Over the past year, Nvidia (NASDAQ: NVDA) has been in the limelight as one of the stock market’s best-performing large companies. With its cutting-edge GPU technology essential for AI, Nvidia’s revenue and earnings have experienced a stratospheric rise. Sales soared by 206% year over year in the third quarter, with non-GAAP earnings increasing by a staggering 593%. The company’s guidance predicts a sales growth of around 231% in the fourth quarter, promising continued remarkable momentum in the near term.
Despite Nvidia’s phenomenal stock gains and the cyclical nature of the semiconductor industry, which historically presents a risk, some investors find the company too hot to handle. Anticipated bans on advanced chip sales to China and forthcoming performance comparisons may also introduce unevenness, potentially dampening investor enthusiasm.
While Nvidia holds promise for long-term returns, let’s explore a “Magnificent Seven” AI stock that presents a more balanced risk-reward profile — Microsoft (NASDAQ: MSFT).
Microsoft’s Dominance in the AI Realm
Recently rivaling Apple as the world’s largest company by market capitalization, Microsoft stands out as a sturdy AI leader. With its consistent sales growth and robust profits even in the face of macroeconomic headwinds, Microsoft has set a winning trajectory. In its September-ended quarter, the company achieved a 13% year-over-year revenue growth, reaching $56.5 billion. Operating income surged by 25% to hit $26.9 billion, and net income soared by 27% to reach $22.3 billion.
Data source: Microsoft. Chart by author.
Driving Microsoft’s surging profitability is its Azure cloud infrastructure platform, pivotal for AI developers seeking to develop, launch, and scale their applications. Furthermore, Microsoft integrates AI into its operating systems and productivity software, positioning itself as a frontrunner in the AI personal assistant space. The company is even designing its own AI chips and stands to benefit across all aspects of its business from the AI revolution.
Microsoft’s Lucrative Dividend and Growth Potential
Encouraged by robust profitability, Microsoft has paid a dividend since 2003 and increased its payout annually for 18 consecutive years. Despite a current yield of approximately 0.7%, which may not immediately attract income-oriented investors, Microsoft’s status as a dividend growth stock makes it a compelling long-term portfolio component. The company’s strong business momentum, coupled with untapped AI opportunities, bodes well for both share price appreciation and increasing dividend payouts.
On top of all that, Microsoft’s strategic ownership stake in OpenAI, renowned for applications like ChatGPT and DALL-E, further solidifies its position as a well-rounded AI stock with substantial growth potential and income-generating capacity.
If you’re looking for a smart investment, Microsoft ticks all the boxes. Plus, when our analyst team has a stock tip, it can pay to listen. Motley Fool Stock Advisor has more than tripled the market in its two decades of operation, and they’re bullish on Microsoft and nine other stocks you may be overlooking.