Every company and your grandma is looking to gain some exposure to AI right now, it seems. Talk of artificial intelligence only continues to pick up, both on earnings conference calls and at the dinner table. Indeed, the advent of various large language models such as ChatGPT has officially ushered in a new era of AI, one in which the average Joe can have a crack at asking a computer what it thinks.

We’re now approaching that stage of the cycle where many start asking “what happens when a computer can think much more rationally and decisively on certain issues than I can?” Fair point – there are plenty of discussions around what can be done to limit the potential harm on jobs in what will eventually be a completely re-shaped economy. That’s the view of many experts, anyway.

For now, innovation continues to roll on in this space, with benefits and risks continuing to be debated. Accordingly, many investors who may be on the fence with respect to how good or bad AI is for society at large may still want to benefit from this trend. The two companies I’m going to highlight on this list as a compare and contrast are certainly beneficiaries of the surge artificial intelligence interest.

Let’s compare these two companies, and see what to make of their incredible performance over the past year.

Key Points About This Article:

• The rise of artificial intelligence has ushered in what many believe will be the next Industrial Revolution, with some companies benefitting more than others.
• Here’s a comparison of semiconductor equipment maker ASML and chip manufacturer Taiwan Semiconductor.
• If you’re looking for some stocks with huge potential, make sure to grab a free copy of our brand-new “The Next NVIDIA” report. It features a software stock we’re confident has 10X potential.

ASML Holdings (ASML)

Top semiconductor equipment maker ASML Holdings (NASDAQ:ASML) has certainly seen its fair share of volatility in recent weeks, with the company’s stock price down more than 18% over the past three months, with much of this decline taking place over the past couple weeks. 

Despite high AI demand, ASML reported slowing orders in other segments in Q3. The stock, now down 36% from its peak, trades near $700 per share. Thus, this is a company that’s either a great bargain at current levels (for those bullish on the AI narrative continuing despite this blip in orders), or it’s a stock that’s worth avoiding due to the potential for investment in this space to slow down.

Personally, I think a little too much is being made of this order slowdown. Yes, orders for the massive (and very expensive) EUV lithography machines have slowed, but that’s not necessarily an indication that investment in newer technologies ASML may put forward won’t reinvigorate growth moving forward. It’s also true that ASML has seen strong growth in past quarters, and the lead time between receiving an order and making delivery can be very long.

So, there’s time to truly ascertain whether these slower orders will translate into a meaningful revenue and earnings ding for the company. For now, ASML has projected $38.4 billion in 2024 revenue and $32.5–$38 billion in 2025, lowering its previous forecast. Unsurprisingly, the stock dropped sharply following the guidance downgrade.

The key question around this stock right now is whether management is sandbagging this bad news, or if there’s more to the story. That’s what makes this stock so intriguing to me right now.

Taiwan Semiconductor (TSM)

Taiwan Semiconductor (NASDAQ:TSM) is set to join the $1 trillion club, dominating over 60% of chip manufacturing spending. Known for its advanced chip production technology, Taiwan Semi is favored by top designers like Nvidia, whose CEO praised it as the world’s best foundry. In Q3, Taiwan Semi reported 39% revenue growth, expanding its gross margin to 57.8%. Additionally, the company reported net income which was up 54.2% on a year-over-year basis. Strong demand for its 3nm and 5nm technologies, driven by AI and smartphones, fueled these results.

Taiwan Semi expects AI chip revenue to more than triple in 2024, though this segment is still only expected to represent a mid-teen percentage of total sales. With strong growth potential, Taiwan Semi continues to invest in its facilities and equipment, looking to seize AI opportunities. Besides Nvidia, major players like Microsoft, Alphabet, Meta, Broadcom, AMD, and Apple rely on TSMC’s advanced technology for AI chips. Regardless of how AI evolves, TSMC is positioned to benefit significantly from this overall trend. 

Taiwan Semi raised its 2024 capital expenditure forecast to over $30 billion, with even higher spending planned for 2025. The company’s R&D investment also grew 11.4% year-over-year, reinforcing its technological leadership. As the world’s largest foundry, TSMC’s ability to outspend competitors strengthens its edge and solidifies partnerships with top customers, creating a hard-to-beat competitive advantage.

Which Is the Best Pick?

In my view, Taiwan Semi is certainly the safer bet of the two companies. Serving most major chip makers as the foundry of choice, and with chips now being produced in Arizona with higher yields than in Taiwan, this is a company that could see explosive growth as the U.S. government clamors for more chips to be made onshore. Accordingly, I think this is the stock which has the most durable and long-lasting tailwinds, as well as the more defensive operations profile, that’s worth considering right now.

That said, I can definitely see a future in which ASML outperforms Taiwan Semi over the next five or 10 years. It really depends on how investors view the investment landscape for AI/chip equipment, and whether ASML can see an order pickup in the coming quarters. With greater risk comes greater reward, so I’d say these two stocks likely speak to different investors.

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