Are you considering Microsoft Corp (MSFT) ahead of its earnings report? Here’s

Microsoft Corp. (NASDAQ:MSFT) CEO Satya Nadella has positioned the Redmond software giant as the biggest beneficiary of the AI ​​revolution with his vision and strategy. In 2019, when Microsoft invested $1 billion in OpenAI, the company behind ChatGPT, it went largely unnoticed. But when ChatGPT launched and the floodgates of generative AI innovation opened, Microsoft was seen as a leader in the AI ​​arms race. Microsoft’s investment in OpenAI has now grown to $13 billion. The company’s long list of AI catalysts includes the rebirth of Bing search, the Co-pilot AI assistant, and AI computing, among many others.

Is MSFT overvalued?

Some, however, believe the stock has gone too far and needs a breather amid growing concerns on Wall Street that just a handful of companies are now driving the majority of the market’s gains. Morgan Stanley’s Lisa Shalett recently said in a note that the Magnificent Seven group of stocks, including MSFT, are poised to see a “drastic slowdown” in earnings growth, according to a Seeking Alpha report. Goldman Sachs equity strategist David Kostin calculated that Microsoft’s second-quarter sales growth will be 15%, down from 17% in the previous quarter, according to another Seeking Alpha report. The company is expected to report earnings on July 23. With the company in too much of the spotlight and AI expectations for the stock being too high, any dip in growth in upcoming earnings could send the stock lower.

There are always underrated players in the market for those who know where to look. Let’s discuss an AI underdog that analysts believe has greater growth potential based on strong growth catalysts.

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Taiwan Semiconductor: A Better AI Stock Than MSFT?

Taiwan Semiconductor Mfg. Co. Ltd. (NYSE:TSM) is one of the most important and largest semiconductor companies in the world. Tweaktown reports that the company’s long list of clients includes tech giants such as Apple, Nvidia, Qualcomm, AMD, and Broadcom, among many others. The AI ​​revolution is expected to further boost Taiwan Semiconductor’s demand and market share. According to Tweaktown’s report, the company has a whopping 70% to 80% market share in 5nm semiconductors and 90% market share in 3nm ICs. Data from consulting firm TrendForce shows that Taiwan Semiconductor had a 60% share of the global foundry market in 2021.

Taiwan Semiconductor AI Revenue Growth Forecasts

Taiwan Semiconductor’s chips are used in everything from smartphones to electric car sensors to computers. But the huge demand for high-end chips unlocked by the generative AI boom has made TSM a promising AI stock. On its first-quarter earnings call, Taiwan Semiconductor executives said they expect AI processor revenue to double this year to a low-teens percentage of total revenue. AI revenue is expected to grow at a 50% CAGR over the next five years and account for more than 20% of the company’s total revenue by 2028.

The story continues

Taiwan Semiconductor’s Moat in the Industry

Taiwan Semiconductor’s moat in the AI ​​IC industry is strong and wide. First, entering the high-end IC industry is not easy, even for large companies. Blackridge Research and Consulting reports that setting up a single 3nm fab can cost as much as $20 billion. Furthermore, Taiwan Semiconductor’s real strength lies in producing millions of ICs with near-defect-free results—the company’s efficiency is over 95%, according to the Atlantic Council. Only Samsung is expected to approach Taiwan Semiconductor’s quality and production capabilities in the coming years amid its massive investment and plans to enter the fab industry. Outside of Taiwan Semiconductor, it has no serious competitors.

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Is the threat from China exaggerated?

Despite its dominance in the AI ​​chip industry, Taiwan Semiconductor’s share price growth has been limited, and the company’s valuation still looks attractive compared to its peers. The stock’s P/E ratio is 27.7 (47 for Nvidia and 46 for AMD). The biggest concern surrounding TSM is a possible escalation of Chinese actions against Taiwan, as the company’s main manufacturing operations are located in Taiwan. However, many analysts believe these concerns are exaggerated and the company does not face any short-term risks. They argue that China cannot afford a direct conflict with the United States. According to a report by the Hudson Institute, any disruption in Taiwan’s semiconductor industry could result in a $1.6 trillion economic loss for the US. Taiwan Semiconductor’s dominance in the chip industry is seen as a “Silicon Shield” for Taiwan that the country can use to deter attacks. Earlier this month, Taiwan Semiconductor President and CEO CC Wei said it was “impossible” to move chip production out of Taiwan and that 80% to 90% of its chip production remains in the country.

Wall Street sees AI boom to benefit Taiwan Semiductor

Wall Street is also bullish on the company. Bernstein analyst Mark Li recently said that high-end phones and advanced nodes could see Taiwan Semiconductor beat 2024 estimates. The analyst believes the company’s data center revenue is growing in line with expectations. Li raised his price target for TSM from $150 to $200. He expects Taiwan Semiconductor’s revenue to grow 25% and EPS to grow 28% in 2024. Earlier this month, BofA’s Brad Lin also raised his price target for TSM to $180. Lin believes the new AI plans unveiled by Apple and other companies at Computex 2024 will fuel the trend of AI on devices, which will benefit TSMC, which the analyst called a “key driver” of AI prosperity.

There are better options with high profitability

The current high interest rate environment has created a tremendous opportunity for income investors to earn huge returns, but not through dividend stocks… Some private market real estate investments are giving retail investors the opportunity to capitalize on these opportunities to earn high returns, and Benzinga has identified some of the most attractive options to consider.

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Don’t miss this opportunity to take advantage of high-yield investments while interest rates are high. Check out Benzinga’s favorite high-yield picks.

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This article Considering Microsoft Corp (MSFT) Ahead of Earnings Report? Here’s a Better Alternative originally appeared on Benzinga.com

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