Keeping a semiconductor-equipment franchise valuable for ten years requires repeated invention. Our 10 Best Semiconductor Stocks to Buy for the Next Decade includes Applied Materials and ASML because both supply demanding manufacturing processes. Their latest results show different amounts of profit available to support the next research cycle.
Applied Materials, Inc. (NASDAQ:AMAT) reported $1.10 billion of research, development and engineering expense in its July quarter. ASML Holding N.V. (NASDAQ:ASML) reported €1.174 billion of research expense in its September quarter. Comparing their dollar budgets would require a currency conversion; comparing their operating burdens does not.
Innovation has to survive a weaker quarter
Applied’s research expense represented 12.1% of its $9.115 billion revenue. ASML’s represented 10.1% of €11.662 billion sales. Their reported operating incomes were $3.075 billion and €5.173 billion, respectively, after those expenses.
If each research bill increased 25% while everything else stayed unchanged, Applied’s operating profit would fall 8.9%, against 5.7% for ASML. Each could absorb that isolated increase while remaining profitable. The exercise measures current funding capacity, not engineering productivity or the return on a particular project.
Research outlays are also only part of the investment requirement. Facilities, supplier capacity and working capital consume cash separately. Our TSMC-ASML capital-spending comparison shows why research expense alone cannot capture an equipment company’s full expansion burden.
Different paths to the next technology cycle
Applied’s EPIC partnerships are intended to shorten the path from materials research to manufacturing. That offers exposure to multiple process steps and advanced packaging. The risk is that a broad project portfolio consumes resources without producing enough profitable customer adoption. Announced collaborations do not establish future revenue.
ASML’s lithography roadmap offers unusually important exposure to advanced chipmaking. Its October presentation described an initiative with TSMC for larger photomasks in High NA EUV. The intended productivity improvement remains a development objective, not proof of a completed commercial return. Customer readiness, system acceptance and export restrictions can delay monetization.
Applied’s wider materials portfolio and ASML’s lithography concentration are genuine alternatives. An investor can prefer breadth even when the specialist currently has the larger profit cushion.
Capacity and valuation are separate tests
At October 16 equity values, historical cash after capital expenditure cost about 58 times for Applied and 26 times for ASML. Those multiples are sensitive to investment and collection timing. ASML’s latest operating cash included a large working-capital inflow, so its low historical cash multiple needs scrutiny rather than automatic endorsement.
Our Lam-Applied payout analysis tests how much cash remains available after investment and distributions. A company can afford research while still leaving shareholders little near-term cash.
Commercialization also needs access to customers.
Q2 2026 hedge-fund holders were 137 for Applied, down from 138, and 140 for ASML, up from 133. Coatue reduced Applied shares 20%; Fisher increased ASML shares 3%. ASML’s September 30 short interest was 0.37% of float.
ASML currently has more operating capacity relative to its research bill. Applied’s case rests on productive breadth and commercialization. The next evidence to watch is profitable adoption of new technologies, not simply a larger development budget or another partnership announcement.
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