ASML

AI stocks are soaring after Oracle and others posted record levels of investment, and most sector stocks are now trading near all-time highs.

However, one big name is getting left behind. That’s ASML (ASML 0.92%), the world’s only maker of extreme ultraviolet (EUV) lithography machines, which are used to make the most advanced semiconductors. ASML plays a crucial role in the global semiconductor supply chain, serving foundries like TSMC with its mammoth machines that cost tens of millions of dollars.

While ASML stock is up 17% year to date, it’s still down significantly from its all-time high, off 26% from its peak in July 2024, showing that the company hasn’t lived up to earlier expectations.

ASML was in the news last week after it invested in Mistral AI, following in the footsteps of tech titans like Nvidia that have invested in smaller AI companies. ASML is investing 1.3 billion euros in the European AI start-up in a Series C funding round. As part of the deal, they formed a collaboration agreement around the use of AI models across ASML’s product portfolio and to team up on research and development to benefit ASML customers.

Investors seemed to like the deal as the stock moved higher last week. Is it a sign of things to come? Let’s take a closer look at where ASML stands today to see if it’s a buy.

Image source: Getty Images.

Can ASML bounce back?

ASML’s deal with Mistral seemed to breathe some new life into the stock as Arete upgraded it to a buy, and Bank of America said that the Mistral investment could expand the stock’s multiple. In recent quarters, ASML has struggled with volatile demand for its machines, including in China, though it has touted strong demand related to AI. Unlike chip designers like Nvidia or even manufacturers like TSMC, ASML is exposed to a different product cycle as a semiconductor equipment manufacturer.

In the second quarter, the company saw strong growth with revenue rising 23% to 7.69 billion euros and net income up 45% to 2.3 billion euros. Bookings in the quarter were flat at 5.5 billion euros.

For the full year, management expects revenue growth to slow, calling for 15% revenue growth for 2025. For 2030, the company continues to target 44 billion to 60 billion euros, or 52 billion at the midpoint, up from 28.3 billion in 2024. That implies a compound annual growth rate of just around 11% at the midpoint.

ASML has a competitive advantage in the industry based on technology, but the demand cycle is outside of its control. The long-term guidance is subject to change, and ASML said, “Looking at 2026, we see that our AI customers’ fundamentals remain strong. At the same time, we continue to see increasing uncertainty driven by macroeconomic and geopolitical developments.”

Is ASML a buy?

The Mistral AI deal is a smart move as it gives ASML some direct exposure to a promising AI start-up and leverages its market power into a new revenue stream. The tailwinds from AI are encouraging as well, but near-term expectations are muted as analysts expect essentially flat growth for the second half of the year and just 4% in 2026.

Following the stock’s recent rebound, ASML shares trade at a forward price-to-earnings ratio of around 30 based on current estimates.

That’s pricey for a stock with single-digit revenue growth, but ASML has enough of a competitive advantage to make holding the stock worthwhile.

At this point, getting a small position in ASML makes sense as estimates are low enough over the coming quarters that the company could top expectations, sending the stock higher. Looking out further, if the AI boom continues, ASML will eventually be a winner even if it got off to a slow start.

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 (ASML -2.78%) and Taiwan Semiconductor Manufacturing (TSM -3.05%), 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.

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.

Published on
16/07/2025 – 10:18 GMT+2

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Supplier of chipmaking equipment ASML retracted its growth forecast for the coming year on Wednesday, sending shares down around 7% in morning trading in Amsterdam.

“The level of uncertainty is increasing, mostly due to macroeconomic and geopolitical considerations. And that includes, of course, tariffs,” said CEO Christophe Fouquet. “Therefore, while we still prepare for growth in 2026, we cannot confirm it at this stage.”

The warning came despite the fact that the Dutch firm saw sales and bookings rise above analysts’ expectations during the second quarter.

Sales rose 23% to €7.7 billion, while net bookings came in at €5.5bn. Net income was at €2.3bn.

For the third-quarter, ASML predicted net sales between €7.4bn and €7.9bn, falling short of estimates, and a gross margin between 50% and 52%.

The firm also forecast 15% revenue growth for the year ahead.

A boom in artificial intelligence is fuelling demand for ASML’s semiconductor-making machines, which are needed to power AI technologies.

Last week, chipmaker Nvidia — a firm that relies on ASML products — became the first company in the world to reach a market value of $4 trillion.

So far, the extent to which ASML will be affected by US tariffs and retaliatory duties is unclear. Semiconductors are currently exempt from Trump’s duties although it’s not yet known whether chipmaking machines will receive the same leniency.

Easing tensions between the US and China are also helping Nvidia, which in turn bodes well for ASML. On Tuesday, Nvidia said it would start selling its H20 AI chip in China again after the Trump administration relaxed export restrictions. The move is a U-turn for the government, which in April banned sales of the chip to China, linked to concerns that the technology could be used for military purposes.

ASML also faces restrictions on sending certain advanced products to China. There has been no suggestion that these measures, imposed by the Dutch government, will be lifted.

“ASML cites the macroeconomic environment and tariffs having an impact on the orders. More specifically, it is more likely uncertainty from China, memory capex uncertainty and the struggles at Intel and Samsung that are more likely to be hampering things,” said Ben Barringer, global technology analyst at Quilter Cheviot.

Intel and Samsung, two ASML customers, are facing financial headwinds, with the latter reporting its first fall in profit in around two years last week.

Barringer continued: “Ultimately, this is a speed bump for what remains a high-quality company. It still has a big backlog so growth should still pull through”.