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

Core Insights - Taiwan Semiconductor Manufacturing Company (TSMC) and ASML Holding N.V. are pivotal players in the global semiconductor ecosystem, with TSMC being the largest contract chipmaker and ASML specializing in extreme ultraviolet (EUV) lithography systems [1][2] TSMC Overview - TSMC continues to lead the semiconductor foundry market, advancing to 3nm production and preparing for 2nm, which positions it well to meet rising AI chip demand [3][4] - In Q2 2025, TSMC reported a 44% year-over-year revenue increase to $30.07 billion and a 61% jump in EPS to $2.47, showcasing its dominance [4] - AI-related revenues for TSMC tripled in 2024 and are projected to double again in 2025, prompting the company to invest between $38 billion and $42 billion in capital expenditures in 2025, significantly higher than the $29.8 billion in 2024 [5] - The Zacks Consensus Estimate predicts TSMC's revenues will grow by 35.9% in 2025 and 14.5% in 2026, indicating strong future growth potential [6] ASML Overview - ASML is crucial in the semiconductor value chain due to its monopoly in EUV lithography, essential for manufacturing advanced chips used in AI and high-performance computing [7] - In Q2 2025, ASML reported a 23% revenue growth and a 47% increase in EPS, but management expressed uncertainty about growth in 2026 due to customer hesitation and market conditions [8][9] - The ongoing U.S.-China tariff discussions are impacting customer capital spending timelines, which may delay ASML's orders and revenue recognition into late 2025 and 2026 [10][11] - The Zacks Consensus Estimate for ASML indicates a 23.8% revenue increase in 2025 but a slight decline of 0.9% in 2026 [11][12] Comparative Analysis - TSMC is expected to see faster earnings growth, with EPS projected to rise by 39.6% in 2025 and 11.6% in 2026, compared to ASML's projected EPS growth of 35.3% in 2025 and 0.7% in 2026 [12][14] - Year-to-date, TSMC shares have risen by 19.1%, while ASML shares have increased by 8.7% [15] - ASML trades at a forward earnings multiple of 26.52, higher than TSMC's 22.18, suggesting TSMC is more attractively priced despite its strong performance [16] Conclusion - TSMC holds an advantage over ASML in terms of near-term earnings stability and valuation, while ASML remains a long-term player due to its lithography technology [18]