ASML and TSMC: a $1,000 AI bet for 10 years

The pitch rests on a simple supply-chain idea: ASML builds the machines that semiconductor manufacturers need for their most advanced chips, and TSMC manufactures chips for customers including Nvidia, AMD, Apple, and Broadcom. Because neither company designs the processors, the author argues they can benefit from AI spending without having to pick which chip designer wins market share.

Recent results are evidence. ASML reported record third-quarter revenue of 11.7 billion euros ($13.07 billion), net income of 5 billion euros ($5.58 billion), and a gross margin of 57.5%, up from 54% in the previous quarter. Management's comments on future demand stood out: customers are already expressing interest in ordering equipment for 2029 and 2030, and ASML expects its planned production capacity for 2027 and 2028 to fall short of customer demand. ASML also expects full-year revenue between 44 billion and 45 billion euros and is exploring ways to expand manufacturing capacity.

TSMC's latest quarter showed revenue of $46.72 billion, up 41.2% year over year, with net income up 68.7% and gross margins of 66.4%. High-performance computing accounted for 68% of revenue, and advanced manufacturing technologies accounted for 79% of wafer revenue, with the new 2-nanometer process already at 8% of wafer revenue. Management guided fourth-quarter revenue to $52.3 billion to $54.3 billion. The author cautions that both stocks are not immune to semiconductor downturns and neither is guaranteed to outperform over the next decade.