TSMC and ASML both qualified for our recent quality-stock list. Compare the other eight businesses that passed the same financial-strength screen before deciding which chipmaking franchise deserves a place in a long-term portfolio.
Taiwan Semiconductor Manufacturing Company Limited (NYSE:TSM) makes advanced chips, while ASML Holding N.V. (NASDAQ:ASML) supplies the lithography equipment that makes leading-edge production possible. Both have scarce capabilities. At October 12 closing prices of $444.35 and $1,750.24, respectively, scarcity alone cannot establish which offers the better return.
Image: TSMC
Put the growth hurdle on the same footing
Our comparison asks how quickly revenue must grow after 2026 to support a 10% annualized price return over five years. We use five growth steps through the 2031 earnings run rate, an approximation of the holding period from October 2026. Dividends are excluded for both companies. This is an expectations test, not a price forecast or a claim that the companies deserve identical valuations.
For TSMC, we assume 2026 revenue of $173.84 billion, 42% above its $122.42 billion 2025 result. That is our estimate, consistent with management’s guidance for growth slightly above 40%, rather than an exact company forecast. We use a 50% net margin and 5.1864 billion American depositary receipt equivalents, with five ordinary shares per receipt.
For ASML, we use the €44 billion midpoint of its 2026 revenue guidance, a 34% net margin and 384.9 million diluted shares. Its US-listed securities are ordinary shares, not depositary receipts. We translate euros at the October 12 reference rate of $1.1181 and hold that rate constant. Both models hold share counts and margins constant thereafter.
The margin assumptions are consequential. TSMC’s first-half net margin exceeded 53%, but included a nonrecurring investment gain; we do not extrapolate that result. ASML’s first-half margin was 31.4%, so 34% requires improvement as sales and gross profit rise. Its third-quarter gross-margin guidance supports that possibility without guaranteeing the assumed net margin.
At an ending valuation of 30 times earnings, TSMC needs revenue to compound at 7.3% annually after 2026. ASML needs 16.7%. The calculation converts the required ending share price into earnings, then into revenue using the assumed margin and share count. On those terms, TSMC has the lower operating hurdle.
The multiple can reverse the answer
Thirty times earnings is a common comparison point, not an estimate of fair value. If TSMC finishes at 25 times earnings while ASML commands 40 times, their required revenue growth becomes 11.3% and 10.2%, respectively. ASML wins that comparison because its premium survives.
There are reasons for a premium. ASML supplies indispensable equipment and earns revenue supporting its installed fleet. But upgrades and customer spending cycles make that stream different from contracted subscriptions. See why ASML’s installed-base revenue is less predictable than a subscription.
TSMC benefits when competing chip designers place manufacturing orders with it. See how the foundry can benefit even when AI chip designers trade market share. That position supports the bull case, but does not remove the expense of expanding capacity.
First-half operating cash flow less property and equipment purchases was $20.12 billion for TSMC. ASML’s operating cash flow less equipment and intangible investment was negative €1.29 billion, reflecting working-capital absorption. These cash measures use the companies’ respective reporting classifications; they are not perfectly comparable. They do show why modeled accounting earnings cannot simply be treated as cash available for dividends or buybacks.
What could break the comparison?
TSMC plans $60 billion to $64 billion of capital spending in 2026. Overseas factories and new-node ramps can pressure profitability. See how overseas manufacturing costs can change TSMC’s valuation case. A disruption affecting Taiwan would be more severe than a routine margin shortfall.
ASML faces equipment-order timing, export restrictions and the risk that capacity expansion runs ahead of customers’ needs. A stronger dollar would also reduce the dollar value of its euro earnings. In a stress case with 10% revenue growth, a 28% net margin, a 28-times ending multiple and a 10% weaker euro, its modeled share price falls to about $1,452. TSMC at 5% growth, a 40% margin and 22 times earnings ends near $376. Neither stress case captures every possible loss.
Insider Monkey counted 249 TSMC hedge fund holders in Q2 2026, up from 234, and 140 ASML holders, up from 133. Fisher Asset Management increased its shares by about 2% and 3%, respectively. September 30 short interest was 30.49 million TSMC shares and 1.45 million ASML shares. Those dated positions are context, not current buying signals.
TSMC offers the lower growth hurdle under a common ending multiple. ASML becomes more attractive if investors expect its premium to persist and its margins to improve. The practical choice is whether TSMC’s manufacturing and geographic risks justify paying substantially more for ASML’s earnings power.
While we acknowledge the risk and potential of TSM as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than TSM and that has 10,000% upside potential, check out our report about this cheapest AI stock.
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