Choosing between ASML and Taiwan Semiconductor (TSMC) comes down to a critical factor.
ASML and TSMC are among the most important stocks in the artificial intelligence hardware space. TSMC is the preferred foundry for leading companies like Nvidia and Apple. However, TSMC’s success relies heavily on ASML, which manufactures the extreme ultraviolet lithography (EUV) machines that enable TSMC to produce advanced chips.
This interdependence complicates investment decisions as both companies are essential in the chip production process. Investors should carefully evaluate which stock aligns best with their investment strategies.
### The Case for ASML
Investors should note that ASML’s EUV machines are typically in demand by a limited number of clients, commanding prices up to $400 million each. Political restrictions, especially concerning sales to countries like China, further narrow its client base.
Notably, companies such as Samsung and Intel are key customers for ASML. Additionally, ASML operates in the deep ultraviolet lithography (DUV) sector, gaining revenue through more diverse foundry clients producing different types of chips.
The maintenance of these costly machines is crucial, and ASML runs a successful maintenance service that contributes over one-third of its revenue. With the rise of AI, ASML saw nearly 23 billion euros ($27 billion) in revenue during the first nine months of 2025, a 21% increase year-over-year. The company also managed to limit expense growth, leading to a net income of 6.8 billion euros ($7.9 billion), a 39% increase from the previous year. Over the last year, ASML’s stock has risen by almost 50%.
The price-to-earnings (P/E) ratio is currently 40, slightly above the S&P 500 average of 31, but consistent with ASML’s historical performance, making it attractive amid growing AI demand.
### Why Investors Might Consider TSMC
Conversely, TSMC’s broader client base may make its stock more appealing to investors. TSMC is the largest producer of advanced chips, holding a 70% market share as of the second quarter of 2025, offering significant competitive advantages. Although concerns about geopolitical tensions exist, particularly regarding Taiwan, these have not hindered TSMC’s growth, which reported $87 billion in revenue in the first nine months of 2025—a 36% increase year-over-year.
Expense growth for TSMC has also been moderate, contributing to a comprehensive income of $35 billion, showing a 30% year-over-year increase. Excluding other losses, net income would have risen by 52%. TSMC’s stock has appreciated by nearly 50% in the last year, and with a P/E ratio of 30, it is priced lower than ASML, aligning more closely with the S&P 500 average.
Despite trading at a premium compared to its five-year average of 25, it remains uncertain if TSMC represents a better value or if geopolitical risks justify its previous discounts.
### ASML or TSMC?
Given these insights, investors may benefit from choosing either stock—or both. The decision may ultimately relate to individual risk tolerance. TSMC presents a compelling option for those comfortable with geopolitical risks, as it shows robust revenue growth at a lower valuation.
In contrast, if geopolitical concerns resonate more with an investor, ASML may be the better option due to its manufacturing base being located further from potential hotspots.
Ultimately, both ASML and TSMC stand as key players in the AI hardware market, encouraging investors to carefully analyze their risk tolerance before making a decision.
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