Better Artificial Intelligence Stock: ASML vs. Taiwan Semiconductor

Source Motley_fool

Key Points

  • ASML makes machinery that is unique and essential to the semiconductor machinery.

  • Taiwan Semiconductor is the leading producer of advanced processors in the world.

  • TSMC's sales and earnings growth outpace ASML's, and more growth is likely ahead.

  • 10 stocks we like better than Taiwan Semiconductor Manufacturing ›

The artificial intelligence (AI) boom has been fueled by large tech companies developing impressive AI models that can handle increasingly complex tasks. But a sometimes overlooked aspect of AI are the companies that manufacture complex processors that make those models possible.

Two such semiconductor manufacturing companies are ASML (NASDAQ: ASML) and Taiwan Semiconductor Manufacturing (NYSE: TSM), often referred to as TSMC. While both have their strengths, which one looks like the better stock right now? Here's what's happening with each, and which one is likely the better AI stock.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

The letters AI on top of a processor.

Image source: Getty Images.

ASML's opportunities and risks

ASML has a unique angle in the processor manufacturing market through its extreme ultraviolet (EUV) lithography system that's used to make AI processors. These machines are very complex and not easily replicated, which is why ASML is one of the few companies in the world with these machines. This means that any semiconductor manufacturing company that needs one of these machines has to come to ASML for it.

Despite this opportunity, it's not all sunshine and rainbows for ASML's business. The company is reeling from President Donald Trump's tariffs, and management said recently that potential growth in 2026 will be affected by them. ASML CEO Christophe Fouquet said on the Q2 earnings call: "We continue to see increasing uncertainty driven by macroeconomic and geopolitical developments. Therefore, while we still prepare for growth in 2026, we cannot confirm it at this stage."

That's a shift from management's previous stance that the company would grow significantly this year and next. The company also lowered its estimated sales for this year to about 32.5 billion euros, down from its previous estimate of up to 35 billion euros.

That uncertainty has caused ASML's shares to plunge recently, dropping 13% over the past 12 months. And with investors still unsure how tariffs will impact the company over the next couple of years, they're right to be a little wary.

TSMC's advantages and challenges

Taiwan Semiconductor also has a unique position in the AI space. The company is the leading manufacturer of AI processors, with an estimated 90% of the advanced processor market. This means that when AI giants, including Nvidia, need AI processors made, Taiwan Semiconductor is often their first choice.

This demand continues to fuel growth for the company, and TSMC's management estimates that AI sales will double this year. The company is already well on its way, with revenue rising by 38% to $30 billion in Q2. TSMC's bottom line is impressive as well, with earnings rising 61% to $2.47 per American depository receipt (ADR).

And while ASML is experiencing some turbulence with its business, TSMC is still going strong. Taiwan Semiconductor CEO Wendell Huang said, "Moving into third quarter 2025, we expect our business to be supported by strong demand for our leading-edge process technologies."

Continued demand for AI processors has resulted in TSMC's share price climbing about 40% over the past 12 months, which is significantly better than the S&P 500's gains of 15% over the same time. While some investors are concerned about when the AI boom will be over, it's certainly too early to call it now.

The verdict: Taiwan Semiconductor is the better AI stock

Taiwan Semiconductor is increasing sales and earnings at a healthy clip, has a corner on AI processor manufacturing, and continues to benefit from an expanding AI market. While ASML is a strong contender, the company's recent tariff uncertainty and lowered sales expectations aren't great news for investors.

ASML stock is also slightly more expensive than TSMC's at the moment, with a price-to-earnings (P/E) ratio of about 28, compared to Taiwan Semiconductor's 26. I think both companies could be good long-term AI investments, but for all the reasons above, I think Taiwan Semiconductor deserves the win in this matchup.

Should you invest $1,000 in Taiwan Semiconductor Manufacturing right now?

Before you buy stock in Taiwan Semiconductor Manufacturing, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Taiwan Semiconductor Manufacturing wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $651,599!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,067,639!*

Now, it’s worth noting Stock Advisor’s total average return is 1,049% — a market-crushing outperformance compared to 185% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of August 25, 2025

Chris Neiger has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
placeholder
Dollar Weakens and Stocks Stall as Gold Rises Ahead of Fed DecisionOn Wednesday, global markets saw the dollar weaken, shares dip slightly, and gold rise to new highs as investors prepared for the Federal Reserve’s anticipated interest rate cut later in the day.
Author  Mitrade
Sept 17, Wed
On Wednesday, global markets saw the dollar weaken, shares dip slightly, and gold rise to new highs as investors prepared for the Federal Reserve’s anticipated interest rate cut later in the day.
placeholder
Key Challenges Ahead for US-China TikTok Ownership DealA newly announced framework agreement between the United States and China aims to shift TikTok’s ownership to U.S. control, raising numerous questions and challenges.
Author  Mitrade
Sept 17, Wed
A newly announced framework agreement between the United States and China aims to shift TikTok’s ownership to U.S. control, raising numerous questions and challenges.
placeholder
Oil Prices Rise Following Attacks on Russian Energy Infrastructure Oil prices climbed further on Monday as markets reacted to Ukrainian drone strikes targeting Russian refinery infrastructure, raising concerns over potential disruptions to Russia’s crude and fuel exports.
Author  Mitrade
Sept 15, Mon
Oil prices climbed further on Monday as markets reacted to Ukrainian drone strikes targeting Russian refinery infrastructure, raising concerns over potential disruptions to Russia’s crude and fuel exports.
placeholder
Asia Stocks Steady After Sharp GainsMost Asian stock markets remained steady on Monday following robust gains last week.
Author  Mitrade
Sept 15, Mon
Most Asian stock markets remained steady on Monday following robust gains last week.
placeholder
Asian Stocks Climb on US AI Optimism; Japan’s Nikkei Reaches New Record HighMost Asian stock markets climbed on Thursday, with China leading gains fueled by renewed optimism around U.S. artificial intelligence developments.
Author  Mitrade
Sept 11, Thu
Most Asian stock markets climbed on Thursday, with China leading gains fueled by renewed optimism around U.S. artificial intelligence developments.
goTop
quote