ASML vs. TSM: Which AI Chip Stock Is the Better Buy Now?

Both these companies have become crucial to AI-chip makers. Let's delve deeper to find out which stock among ASML and TSM is better positioned for sustainable growth.

The Case for ASML

ASML continues to benefit from robust demand for wafer fabrication equipment, supported by the growing adoption of advanced semiconductors across AI data centers, hyperscale computing and other high-performance applications. The favorable trends should drive demand for sophisticated lithography systems and increase lithography intensity, supporting a richer product mix.

The company is well-equipped to meet evolving customer requirements through its broad technology portfolio. ASML is expanding its holistic lithography solutions, enabling 3D integration and improving the performance and cost efficiency of its deep ultraviolet and extreme ultraviolet systems. Its continued advancement of EUV technology should reinforce its critical role in leading-edge semiconductor manufacturing over the next decade.

Artificial intelligence represents a significant long-term growth catalyst. Rapidly expanding AI workloads are boosting demand for advanced GPUs, high-bandwidth memory and other cutting-edge chips that depend heavily on EUV lithography. This creates sustained growth opportunities for ASML’s equipment and service businesses.

ASML’s premium product portfolio, extensive installed base and recurring service revenues support healthy margins, strong cash generation and improved earnings visibility. Its sizable order backlog also provides confidence in future revenues. Meanwhile, a growing dividend and ongoing share repurchases underscore management’s commitment to shareholder returns.

However, competition across the semiconductor equipment industry is intensifying. Specialized manufacturers, particularly in areas such as etching, are winning contracts through differentiated technologies and process expertise. Although rising competition could put pressure on pricing and market share over time, ASML’s technological leadership, high barriers to entry and deeply entrenched customer relationships remain formidable competitive advantages.

The Case for TSM

Taiwan Semiconductor is well-positioned for long-term growth, supported by its technological leadership, superior manufacturing scale and enduring relationships with leading chip designers, including Apple, NVIDIA, AMD, Qualcomm and Broadcom.

The company has consistently advanced cutting-edge process technologies. Growing demand from artificial intelligence infrastructure, cloud computing, autonomous vehicles and edge computing requires increasingly sophisticated chips with greater transistor density and energy efficiency. By manufacturing chips for nearly every major fabless semiconductor company, Taiwan Semiconductor gains broad exposure to secular industry growth while limiting its reliance on any single customer.

Management continues to witness strong demand for leading-edge technologies. The company is also leveraging its manufacturing expertise to increase wafer output and optimize capacity across process nodes, which should support profitability.

Despite substantial capital requirements, Taiwan Semiconductor generates industry-leading gross margins, robust free cash flow and strong returns on invested capital. This financial strength enables it to invest aggressively in next-generation technologies while continuing to reward shareholders through dividends.

TSMC’s technology and manufacturing capabilities remain critical to the global semiconductor ecosystem and its customers’ innovation. Backed by strong technology differentiation and a diversified customer base, management expects full-year 2026 revenues to increase slightly more than 40% in U.S. dollar terms.

Estimates for ASML and TSM    

The Zacks Consensus Estimate for ASML’s 2026 revenues implies a 35.2% increase, and that for EPS suggests a 56% year-over-year increase.  EPS estimates for 2026 have witnessed 19% northbound movement in the last 30 days.

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The Zacks Consensus Estimate for TSM’s fiscal 2026 revenues implies a 35.1% increase and that for EPS indicates a 53% increase. The consensus estimate for 2026 earnings witnessed a 6.4% northbound movement in the last 30 days.

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Price Performance of ASML and TSM

TSM shares have gained 9.8% in the past six months, while ASML shares have gained 7.6% in the same time. 

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Are ASML and TSM Shares Expensive?

ASML is trading at a forward 12-month price-to-earnings multiple of 30.06, lower than its median of 31.89 over the past five years. TSM’s forward 12-month price-to-earnings multiple sits at 19.84, lower than its median of 21.26 over the past five years.

TSM is cheaper than ASML presently.

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Conclusion

ASML is well-positioned for sustained growth, driven by its leadership in EUV technology, robust order backlog, and long-term demand from AI, cloud computing, and advanced semiconductor manufacturing. 

Given strong technology leadership and differentiation, Taiwan Semiconductor is well positioned to capture the multiyear structural demand from the industry megatrends of 5G, AI, and HPC.

While TSM sports a Zacks Rank #1 (Strong Buy), ASML carries a Zacks Rank #2 (Buy). Price appreciation, valuation and positive analyst sentiment give TSM an edge over ASML. You can see the complete list of today’s Zacks #1 Rank stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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