Better Chip Stock to Buy: Micron or Taiwan Semiconductor?

Taiwan Semiconductor (NYSE: TSM) has been the gold standard for chip investing since the artificial intelligence (AI) arms race began in 2023. However, a more recent winner has appeared on the scene: Micron (NASDAQ: MU). You may be surprised to hear that Micron has dramatically outperformed Taiwan Semiconductor since 2023. At the time of this writing, Taiwan Semi is up nearly 400%, while Micron is up over 700%, since 2023. The two were pretty evenly matched until Micron's stock caught fire in August of last year.

While Taiwan Semiconductor's stock is up an impressive 50% since August, Micron's stock is up 300%! That's an impressive run in a short period of time, but has it made the stock too expensive?

Let's take a look and see which chip fabricator is the best buy now, and how much more gains each stock has left in the tank.

Image source: Getty Images.

These two aren't competitors

Although both Micron and Taiwan Semiconductor manufacture chips, they do not compete because they are making different types of chips. Taiwan Semiconductor makes logic chips, while Micron makes memory chips. Each of these has its function in all sorts of computing devices, but logic chips tend to get more focus. There isn't a lot of difference between memory chips from one manufacturer to the next, so the product has become fairly commoditized. That's not the same case for logic chips, as there are different manufacturing techniques that can dramatically separate one producer from another.

Still, both companies are cyclical and experience rising and falling demand for chips all the time. Because Micron's product is more of a commodity, these cyclical waves are more intense. This makes investing in Micron more difficult, as you must buy and sell the stock at the right time.

As a result, I think Taiwan Semiconductor has a better business focus between the two.

Winner: Taiwan Semiconductor

Micron's growth is more impressive

Moving to growth rates, both companies have respectable growth rates, but Micron's isn't fading like Taiwan Semiconductor's is.

TSM Revenue (Quarterly YoY Growth) data by YCharts

The reality is that the memory chip market is growing incredibly fast right now, and there isn't enough supply to meet the demand. This has caused memory chip prices to skyrocket, giving Micron two separate growth catalysts. Taiwan Semiconductor isn't dealing with skyrocketing chip prices, just increasing demand, so this growth mismatch will likely be sustained over the next few years.

Winner: Micron

Micron appears cheaper on the surface, but there's a reason for that

Moving to valuation, at first glance, Micron looks like the no-brainer pick because it's so much cheaper than Taiwan Semiconductor.

TSM PE Ratio (Forward) data by YCharts

However, there's a reason for that. Because Micron operates in a more cyclical industry, the market is always going to price its stock at a discount to its peers because you cannot fully value a company whose primary market could crash at any time. So, just because Micron's stock appears to be trading at half the price tag of Taiwan Semiconductor, it doesn't mean that it's a no-brainer buy.

Both stocks look reasonably valued, and it's hard to give either company the win in this category.

Winner: Tie

A tie?

With all the scores tallied up, it appears to be a tie. But there's one important factor we're missing: You. Everyone has different investing styles, and that can sway your pick. If you're someone who follows the daily trends of stocks you own and want maximum upside, I think Micron is the better pick. But, you must be willing to move on with it if the memory chip market crashes due to more inventory becoming available (Micron has several fabrication facilities under construction to meet demand). If you're more of a set-it-and-forget-it investor, then Taiwan Semiconductor makes more sense, because it has a sustainable technological advantage.

Both companies have their merits; it all boils down to which trait you value the most.

Keithen Drury has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Micron Technology and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.