ASML vs. Taiwan Semiconductor: Which Semiconductor Monopoly Is the Safer Investment?
- TSM
- ASML
- NVDA
In the chip world, there’s really only one monopoly: ASML Holding(NASDAQ: ASML). ASML makes a machine that no one else in the world has the technology to make, and it’s vital to the production process of every advanced chip manufacturer, including Taiwan Semiconductor Manufacturing (NYSE: TSM).
While Taiwan Semiconductor isn’t considered a monopoly, it’s the only company in the world with the foundry capacity to produce the chips needed to power the AI build-out, which gives it a pseudo-monopoly due to its size, position, and influence in the industry.
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These two are some of the most powerful companies on Earth, and they’re available to invest in. They’ve already delivered a great return to investors, but which one can deliver moving forward? Let’s find out.
Taiwan Semiconductor is reducing its investment risk
ASML’s extreme ultraviolet (EUV) lithography machines are incredible. They cost hundreds of millions of dollars and, fully assembled, are about the size of a bus. As a result, ASML doesn’t make a ton of these machines each quarter, which can make results lumpy. But when you have a technological monopoly on a machine that makes one of the most important products in the world, the company can nearly charge whatever it wants.
Right now, business is booming for ASML because the chipmakers are ramping up production capacity to meet demand caused by AI chips. However, if excess chip-building capacity is built out for the AI arms race, it could harm ASML’s business five to 10 years from now ifchip demand has fallen compared to the peak.
Taiwan Semiconductor may seem like a no-brainer investment, but many investors are worried about Taiwan’s relationship with mainland China. There have been rumors of military action to bring Taiwan back under the control of China for years, although nothing has happened yet. An attack could send shares tumbling, but considering how many of the world’s chips come from the tiny island, it would also plunge the markets into turmoil.
However, Taiwan Semiconductor is reducing the risk of this single point of failure by increasing production capacity elsewhere. TSMC announced an additional $100 billion investment in Arizona during its Q2 conference call, bringing its total to around $265 billion.
