2 AI semiconductor stocks to consider buying in 2025

with microsoft As the company recently announced its intention to invest $80 billion in building data centers around the world this year, spending on artificial intelligence (AI) infrastructure is not expected to decrease. Meanwhile, as companies advance their AI models, exponentially more chips are needed to train those models. both nvidia and Broadcom We talked about customers deploying clusters of more than 1 million AI chips in the near future, which is a huge leap forward from what AI models have been trained on recently.

Let’s take a look at two semiconductor stocks that could benefit greatly from the continued proliferation of AI chips.

1. Taiwan Semiconductor

Today, most chip manufacturers, such as Nvidia and Broadcom, only design the chips and leave manufacturing to third parties. Semiconductor manufacturing is a complex task that requires a lot of technical know-how, and there is always a need for manufacturers to shrink chip sizes to increase processing power and reduce power consumption. At the same time, building a foundry (a chip manufacturing facility) is a capital-intensive business (i.e., it costs a lot of money to build), and the foundry must operate close to maximum capacity to be profitable.

Here’s how difficult it is to run a third-party foundry business. intelFor this sector alone, huge sums of money were invested in foundry construction and large sums of money were lost. Samsung’s The foundry business also suffered greatly, reporting big losses last quarter and the company announcing plans to lay off 30% of its employees and close half of its production lines.

But there is one semiconductor contract manufacturer that has emerged as a clear winner in this space. taiwan semiconductor (TSM 0.60%)TSMC for short. The company is seeing booming sales and profits thanks to the AI ​​chip boom. Last quarter, revenue rose 36% to $23.5 billion, and earnings per ADR rose 50% to $1.94 from $1.29 a year ago.

The company has positioned itself as a contract manufacturer of advanced chips, given its scale and technological advantages. This has given the company tremendous pricing power while its competitors have struggled, helping boost gross margins from 54.3% a year ago to 57.8% last quarter. There were reports that the price would also increase in 2025. Meanwhile, production capacity has been expanded through the expansion of new foundries.

TSMC is one of the companies best positioned to benefit from the ongoing chip boom, and its stock has a forward price-to-earnings (P/E) ratio of 19.5 and a price-to-earnings-to-growth (PEG) ratio of 0.65. A PEG ratio below 1 is generally considered undervalued, but growth stocks often have PEG ratios well above 1.

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2.ASML

While TSMC manufactures semiconductor chips, ASML Holdings (ASML -0.67%) This is a company that makes the equipment used to manufacture those chips. ASML is a clear leader in extreme ultraviolet (EUV) lithography, the technology used to create these advanced chips. The cost of an EUV machine can be more than $200 million.

Meanwhile, the next-generation High-NA EUV technology was recently introduced, and the price of this machine reaches a whopping $380 million per unit. Despite these challenges, Intel was the first company to invest in these next-generation machines, and TSMC received its first machines for trials in late 2024. However, it will likely be several years before these machines are more widely adopted. TSMC has stated that it does not currently require high NA EUV technology to manufacture the current generation of advanced chips.

ASML executives are reportedly scheduled to meet with TSMC executives soon to discuss TSMC’s roadmap for the next few years. However, according to the report, TSMC may not need such high NA EUV equipment for mass production until at least 2030.

Nonetheless, TSMC still needs to increase production and build more foundries, so it will still need more EUV equipment. ASML basically has a monopoly on the EUV space and will continue to profit even if its latest technology doesn’t come to fruition for several years.

Meanwhile, Intel plans to use high-NA EUV technology for production in 2027. It will be interesting to see if Intel is willing to take such a big head start on using high-NA EUV technology despite TSMC’s struggles. Intel plans to invest $100 billion in adding chip manufacturing facilities in the U.S. over the next few years and has received about $8 billion in direct funding from the government, along with a 25% tax credit.

Interestingly, while Intel was late to get into EUV technology to maximize profits, TSMC’s embrace of the technology is one of the reasons why both companies are where they are today. That’s why it’s still quite possible that TSMC will adopt high NA EUV technology before 2030, unless they risk the script being flipped.

Not only is ASML going through a bit of a transition to new technology, it’s also dealing with Chinese companies that are pushing back on orders for older technology out of fear of harsher export bans on semiconductor technology. Nonetheless, as the only manufacturer producing EUV and high NA EUV equipment, it will ultimately be a long-term winner. Trading at 24 times forward earnings, the stock is reasonably priced.