ASML vs. Applied Materials: Which Chip Equipment Stock Is the Better Buy?

Source link: ASML vs. Applied Materials: Which Chip Equipment Stock Is the Better Buy? The boom in AI chip investment has created a major growth opportunity for semiconductor equipment makers, but differences in competitive position and long-term growth potential set the investment paths of these two companies apart. At a glance, ASML, with a roughly 90% share of the lithography equipment market, enjoys an exceptional competitive advantage

The investment boom in artificial intelligence chips has created a huge growth opportunity for semiconductor equipment manufacturers; But the difference in competitive position and long-term growth capacity separates the path of investment in these two companies.

SML has a unique competitive advantage with a 90% dominance of the lithography equipment market.

With a diverse portfolio of equipment, Applied Materials has the possibility of selling integrated products and increasing market share.

Both companies benefit from growing demand for artificial intelligence chips and expanding production capacity.

Despite SML's technological superiority, the valuation and long-term growth potential could favor Applied Materials.

The wave of investment in the chip industry

Rising demand for AI chips has driven semiconductor companies to massively expand production capacity. Memory manufacturers have large investment plans underway, and Taiwan's TSMC has increased its capital budget to meet market demand.

In such a situation, investing in chip production equipment manufacturers can be a way to take advantage of the industry's growth. SML and Applied Materials are two important players in this chain; with the difference that one has a significant advantage in lithography technology and the other has a wider variety of products.

Applied Materials; Product diversity and the opportunity to increase market share

Applied Materials manufactures a wide range of chip fabrication equipment; including layer marking, engraving, process monitoring and quality control equipment. Lamination places conductive or insulating materials on a silicon wafer and is considered one of the company's growing areas in 2026.

The important advantage of this business model is the possibility of combining several processes in one equipment system. Such a solution can reduce the initial cost of customers and the required space of the factory and increase the production capacity. Closer cooperation with chip manufacturers has also strengthened the company's understanding of customer needs.

Of course, maintaining this position requires heavy investment in research and development. The operating profit margin of the company is reported to be around 31%, which is lower than some specialized competitors; However, expanding sales of integrated equipment and increasing market share in more profitable segments can help improve its profitability.

SML; Technological excellence in lithography

SML is a manufacturer of lithography machines; Equipment used to create very fine patterns of circuits on silicon wafers. According to the article, this company has about 90% of the lithography equipment market, and in terms of technology, it has created a significant gap with its competitors.

The high durability of this company's equipment, which can be used for up to 30 years, is another advantage for it. As the number of installed devices increases, service and support revenue can also grow. SML also plans to increase its production capacity by 30% in 2027 and follow a similar development in 2028. Increased sales of advanced equipment, especially amid growing demand for logic chips and memory, could support the company's revenue and margins.

"The key point of this comparison is the distinction between technological superiority and return on investment. SML's mastery of lithography creates a structural advantage; But if a large part of this advantage is reflected in the stock price, it does not necessarily mean a higher return for the investor. Applied Materials creates value from another path: product portfolio expansion, integrated sales and market share increase. However, its superiority translates into real returns when revenue growth is accompanied by improved profit margins and cash flow. Therefore, the choice between these two stocks should be made not only on the basis of industry growth, but also on the basis of price paid, quality of earnings and realistic expectations of future performance.

Comparison of market valuation and financial situation

According to the figures included in the article, the ratio of the price to the expected profit of both companies for the next 12 months is about 40 times. But looking at the estimate of profit per share in 2028, the price to profit ratio of SML is about 23 times and Applied Materials is about 21 times.

This difference shows that, assuming the predictions are fulfilled, Applied Materials shares will be traded at a lower profit margin. Of course, a lower ratio alone does not mean that the share is cheap; The quality of profit, the speed of growth and the degree of fulfillment of forecasts are also important.

SML enjoys a unique competitive advantage thanks to its dominant position in lithography, pricing power and service revenue. In contrast, Applied Materials can leverage equipment diversification, sell integrated solutions, and increase market share for long-term growth. Considering the more stable growth capacity and relative valuation, the article considers Applied Materials to be a more attractive option; However, the future performance of both companies depends on continued investment in the chip industry.

Artificial intelligence has been used to translate some parts of this report.