TSMC. (Bloomberg file photo)
[Financial Channel/Comprehensive Report] The artificial intelligence (AI) craze continues to boost global semiconductor demand. Major chip manufacturers such as NVIDIA and Intel have received great attention from the market. However, behind the AI chip industry, there are two key companies that play an indispensable role. The foreign media "The Motley Fool" named TSMC and ASML, believing that the two companies respectively master advanced chip manufacturing and key equipment technologies and have established competitive advantages in the semiconductor industry that are extremely difficult to be replaced by competitors. They are investment targets worthy of long-term holding.
The report pointed out that chip technology is an important foundation for the continued expansion of the current AI market, and companies that truly master advanced technology and large-scale production capabilities can often occupy an important position in the industry chain. Although brands such as Huida and Intel are more familiar to investors, TSMC and ASML are also key companies that cannot be ignored in the AI chip industry.
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Among them, one of TSMC's biggest advantages is its advanced process technology and large-scale mass production capabilities.
The report pointed out that Huida is responsible for designing its advanced AI chips, but almost 100% of the chip manufacturing is handled by TSMC. In addition to Huida, many AI and technology companies that design their own chips, including Apple, also use TSMC's foundry services.
TSMC’s competitive advantage mainly comes from two aspects. The first is to continue to promote advanced process technology, and the second is to have the ability to mass-produce advanced processes. The report cited data indicating that TSMC accounted for an estimated 72.5% of global foundry revenue in the second quarter of this year.
This means that even if a chip design company wants to change its foundry partner, it will not be easy to find another company that can produce advanced chips with the same efficiency and scale.
It is worth noting that even Intel sometimes seeks TSMC's assistance in producing chips, highlighting TSMC's importance in the global semiconductor supply chain.
On the other hand, ASML masters the key technologies of semiconductor manufacturing equipment.
ASML is one of the world's most important semiconductor equipment manufacturers, especially in the field of extreme ultraviolet (EUV) lithography equipment. EUV equipment can be used to manufacture advanced process wafers and form extremely tiny circuit structures on the wafer. It is an important equipment for advanced semiconductor manufacturing processes.
The report believes that ASML’s competitive advantage comes from decades of accumulated R&D technology, patents and industrial partnerships. It is not easy for other companies to copy this technology in a short period of time.
To put it simply, TSMC masters the ability to "produce advanced chips in large quantities", while ASML masters the technology of "key equipment required to manufacture advanced chips." The two companies are located in different parts of the semiconductor industry, but both are closely related to the continued development of AI chips.
The report also pointed out that these two stocks have performed quite well over the years, and the high market demand for the two companies has also caused them to have higher valuations in some periods. Looking at the expected price-to-earnings ratio, the report pointed out that the current valuation of ASML is higher than that of TSMC, but the valuations of the two companies have not significantly deviated from the average levels of the past few years.
As the world continues to expand wafer fabs, AI servers and high-performance computing (HPC) demand increase, the demand for advanced chips continues to attract market attention and has a strong competitive moat. As more wafer fabs continue to be built around the world to meet the increasing demand for chips, the revenue and profits of the two companies are expected to continue to grow.
"The Motley Fool" believes that both TSMC and ASML have strong competitive moats. As more fabs continue to be built around the world to meet the increasing demand for chips, the two companies' revenue and profits still have room for growth.
As for investment options, the author of the report believes that if you can only choose one of the two companies, considering that TSMC's valuation at the time was cheaper than ASML, TSMC is preferred. However, no matter whether investors hold any of these two companies, they will not be wrong, because without TSMC and ASML, the AI industry would not be able to develop to the scale it is today.
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