Better Artificial Intelligence Stock: ASML vs. Taiwan Semiconductor

ASML ( ASML +0.67%) and Taiwan Semiconductor (TSMC) ( TSM +1.33%) are arguably the two most essential artificial intelligence (AI) stocks in the hardware space. TSMC is well known for being the foundry of choice for Nvidia , Apple , and other top semiconductor companies. However, TSMC's success is not possible without ASML. It uses the extreme ultraviolet lithography (EUV) machines built by ASML to manufacture the world's most advanced chips. This creates a harder job for investors trying to discern which stock is more likely to make the highest long-term gains. Although both companies are critical to this process, investors need to take a closer look to see which is the more suitable stock for them to own. Image source: Getty Images. The case for ASML Investors should remember one thing about ASML. Despite ASML's importance, only a tiny client base is interested in its EUV machines, which can cost as much as $400 million each. Worse, political concerns bar what equipment it can sell to countries like China, further adding to that limitation. Nonetheless, companies such as Samsung and Intel are among the companies buying EUV machines. Additionally, ASML operates in the deep ultraviolet lithography (DUV) market. Although the market has more competitors, it also allows it to earn business from foundry companies that produce other types of chips. Furthermore, such costly equipment needs periodic maintenance. With that, the Netherlands-based company runs a thriving maintenance business that accounts for more than one-third of ASML's revenue. Amid the growth in AI, its machines are more in demand, so much so that ASML earned almost 23 billion euros ($27 billion) in revenue in the first nine months of 2025, a yearly increase of 21%. Also, ASML limited expense growth, leading to a net income of 6.8 billion euros ($7.9 billion), a 39% rise from year-ago levels. With the rising profits, the stock is up by almost 50% over the last year. NASDAQ: ASML Key Data Points Investors should also note the price-to-earnings (P/E) ratio of 40. While that is above the S&P 500 average of 31, it closely approximates the company's average over the last five years. Considering the demand in AI, such a valuation is unlikely to deter investors from bidding the stock price higher over time. Why investors might consider TSMC However, with a larger client base, investors might find TSMC stock more appealing. They might also like its dominance. As mentioned, TSMC makes the world's most advanced chips. While companies like Samsung and Intel have attempted to compete, TSMC's dominant market share continues to grow. As of the second quarter of 2025, that market share reached 70%, giving the company a tremendous competitive advantage. This arguably makes TSMC's biggest threat operating in Taiwan, an island that has dealt with periodic threats of an invasion by China. Since Chinese companies also depend on its chips, the threat could be overblown. Still, it was concerning enough that Warren Buffett reversed a decision by his lieutenants to invest Berkshire Hathaway...

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