TSM vs. ASML: Which Semiconductor Stock Has Better Upside Potential?

Taiwan Semiconductor Manufacturing Company TSM and ASML Holding N.V. ASML are two powerhouses at the heart of the global semiconductor ecosystem. TSM, based in Taiwan and also known as TSMC, is the largest contract chipmaker globally. Meanwhile, ASML, a Dutch-based company, builds the extreme ultraviolet (EUV) lithography systems needed to fabricate the world’s most advanced chips.Both companies are essential to the production of high-performance computing and artificial intelligence (AI) chips. However, from an investment point of view, one stock offers a more favorable outlook than the other right now.Taiwan Semiconductor: Foundry Leader With ScaleTaiwan Semiconductor continues to dominate the semiconductor foundry space. TSMC is known for its advanced production capabilities and has already moved into 3nm production, with 2nm coming soon. Its large scale allows it to handle rising AI chip demand better than most competitors.Taiwan Semiconductor has established itself as the preferred manufacturing partner for AI accelerators, including graphics processing units (GPUs) and custom silicon developed by major players like NVIDIA, Marvell Technology and Broadcom.Taiwan Semiconductor’s latest earnings report highlights just how dominant the company remains. In the second quarter of 2025, TSM’s revenues surged 44% year over year to $30.07 billion, while EPS jumped 61% to $2.47.The ongoing artificial intelligence (AI) boom has placed TSMC at the center of a multi-year structural growth cycle. AI-related revenues tripled in 2024 and are expected to double again in 2025. To keep up with the growing demand for AI chips, Taiwan Semiconductor is spending aggressively. The company is set to invest between $38 billion and $42 billion in capital expenditures in 2025, far outpacing its $29.8 billion investment in 2024.With AI likely to be a long-term driver, TSMC’s future growth potential looks strong. The Zacks Consensus Estimate for 2025 and 2026 revenues indicates a year-over-year increase of 35.9% and 14.5%, respectively.ASML: Strong Technology but Faces Near-Term PressureASML Holding is widely regarded as the most important company in the global semiconductor value chain due to its monopoly in EUV lithography. This cutting-edge technology is essential for manufacturing the smallest and most advanced chips used in AI accelerators, high-performance computing and smartphones. Demand for EUV systems remains robust, with top customers like Taiwan Semiconductor Manufacturing, Samsung and Intel investing heavily in advanced node development.Financially, ASML Holding is performing well. In the second quarter of 2025, it reported revenue growth of 23% and a 47% jump in earnings per share. Despite strong quarterly results, management’s commentary about next year’s forecasts raises concerns about its growth prospects.On the second-quarter earnings call, management backed away from earlier confidence about growth in 2026. Previously, ASML Holding had expected demand to keep rising, especially with AI fueling more chip production. However, on the second-quarter call, the company said that it “cannot confirm growth in 2026,” pointing to customer hesitation and ongoing market uncertainty.During the call, ASML Holding acknowledged that ongoing U.S.-China tariff discussions, including the Section 232 tariff review, are negatively impacting customer capital spending timelines. This hesitation may delay orders and revenue recognition in late 2025 and into 2026, casting doubt on near-term growth continuity.Analysts are also pessimistic about the company’s prospects in 2026, as reflected by the Zacks Consensus Estimate. The consensus mark for 2025 revenues indicates a year-over-year increase of 23.8%, while that for 2026 reflects a decline of 0.9%.TSM vs. ASML: Earnings Growth TrendThe Zacks Consensus Estimate for ASML Holding’s 2025 and 2026 EPS implies a year-over-year improvement of 35.3% and 0.7%, respectively.ASML Earnings Growth OutlookImage Source: Zacks Investment ResearchTaiwan Semiconductor is expected to see faster growth than ASML, with EPS projected to rise 39.6% in 2025 and 11.6% in 2026.TSM Earnings Growth OutlookImage Source: Zacks Investment ResearchTSM vs. ASML: Price Performance and ValuationYear to date, shares of Taiwan Semiconductor and ASML Holding have risen 19.1% and 8.7%, respectively.Image Source: Zacks Investment ResearchOn the valuation front, ASML is trading at a forward earnings multiple of 26.52, higher than TSM’s 22.18X. This shows Taiwan Semiconductor stock is reasonably priced despite a robust year-to-date rally in its shares and higher earnings growth projections.Image Source: Zacks Investment ResearchConclusion: TSM Has an Edge Over ASMLWhile both companies are essential to the future of semiconductor manufacturing, Taiwan Semiconductor has an edge. It offers stronger near-term earnings stability and a more attractive valuation. ASML remains a long-term winner, thanks to its unmatched lithography technology, but its rich valuation and short-term headwinds make it less appealing than TSM.TSM and ASML carry a Zacks Rank #3 (Hold) each at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.#1 Semiconductor Stock to Buy (Not NVDA)The incredible demand for data is fueling the market's next digital gold rush. As data centers continue to be built and constantly upgraded, the companies that provide the hardware for these behemoths will become the NVIDIAs of tomorrow.One under-the-radar chipmaker is uniquely positioned to take advantage of the next growth stage of this market. It specializes in semiconductor products that titans like NVIDIA don't build. It's just beginning to enter the spotlight, which is exactly where you want to be.See This Stock Now for Free >>Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report ASML Holding N.V. (ASML): Free Stock Analysis Report Taiwan Semiconductor Manufacturing Company Ltd. (TSM): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks