ASML vs. TSMC: Which Semiconductor Supply Chain Stock Is the Better AI Play?

I have long thought that one of the best ways to invest in artificial intelligence (AI) and its infrastructure is to find a company that provides a product or service so compelling that it essentially dwarfs the competition. That's why two of my favorite stocks in the semiconductor supply chain are Taiwan Semiconductor Manufacturing (NYSE: TSM) and ASML (NASDAQ: ASML).

Both of these companies have been more-than-solid winners over the last five years, with net income for Taiwan Semiconductor (TSMC for short) rising 251% in that time, and revenue increasing by 165%. ASML has been strong as well, with better than 90% gains in both net income and revenue.

Their shares in the last five years have outpaced the tech-heavy Nasdaq Composite by a wide margin.

TSM data by YCharts.

Both of these AI stocks have been great investments. But as we look forward, which appears to be the better AI play?

Image source: The Motley Fool.

Taiwan Semiconductor Manufacturing

TSMC is the world's largest semiconductor chip manufacturer. The company is estimated to have 73% of the global foundry market, up from 69% in the fourth quarter of 2024. It fabricated more than 12,600 different products in 2025, using 305 different process technologies.

Its latest manufacturing technology is the 2-nanometer process, which offers higher density and energy efficiency. The company has been a leader in developing advanced fabrication abilities, with its 3-nm and 5-nm technologies generating more than 60% of its revenue in recent quarters. It brought in revenue for its 2-nm process for the first time in the most recent quarter.

Data source: TSMC.

TSMC also announced a $100 billion expansion of its factory in Arizona, which would support advanced packaging fabs and its 2-nm processing technology.

Revenue in the second quarter was $40.2 billion, up 33.7% from a year ago, and the company's net profit margin was 55.6%.

ASML

As important as TSMC is to the semiconductor supply chain, ASML makes the job much easier. The Dutch company makes machines that TSMC and other foundries need to produce minuscule circuits and components etched on semiconductor chips.

Most chip manufacturing relies on deep ultraviolet (DUV) technology and lenses to focus tiny light beams to make microscopic circuit patterns on silicon wafers. ASML sells DUV machines, but it also sells more-advanced extreme ultraviolet (EUV) technology that uses mirrors instead of lenses. That greater precision allows EUV machines to perform tasks that DUV machines cannot.

ASML sold 86 new lithography units and five used units in the second quarter, up from 67 new machines and 12 used lithography machines a year ago. That helped revenue jump substantially to 9.32 billion euros ($10.69 billion), up 11% from a year ago. Net income was 2.91 billion euros ($3.16 billion), up 5.8%, and gross margins were 54%.

CEO Christophe Fouquet said:

Ongoing AI-related investments and continued progress in AI technologies are driving demand for advanced logic and memory chips, further strengthening the semiconductor industry's growth outlook. Our customers, in turn, continue to accelerate their capacity expansion plans. This is translating into customer commitments across our product portfolio, providing ASML with increased visibility into longer-term demand.

Which is the better semiconductor supply chain stock?

Let's be clear: There's not a bad choice here. But if I'm picking just one, I lean toward TSMC. Its increasing leadership in chip manufacturing, expansion plans, leading technology, and central role in fabricating advanced AI processors give it the edge in this head-to-head matchup.

Patrick Sanders has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.