TSM and ASML both carry Stoxcraft's perfect 5-star Overall Rating right now. That number alone makes them look interchangeable, two elite chip stocks, same score, pick either one.
They're not interchangeable. One sits at the very end of the chip supply chain, physically building the world's most advanced semiconductors. The other sits one step upstream, building the machines that make that manufacturing possible in the first place. Same industry, same perfect rating, completely different business models underneath. This comparison exists to find out whether that 5-star tie actually holds once you look past the stars.
Meet the contenders: TSM and ASML
TSM is Taiwan Semiconductor Manufacturing Company, the world's largest dedicated chip foundry. It doesn't design chips, it builds them for customers like Apple, Nvidia, and AMD, running the most advanced manufacturing process nodes on the planet. TSM trades on the NYSE as an ADR and has become the default proxy for AI hardware demand across the entire market.
ASML makes something rarer: the extreme ultraviolet lithography machines that foundries like TSM actually need to produce those advanced chips at all. It's close to a monopoly position, ASML is the only company in the world making EUV machines at scale. Headquartered in the Netherlands, it sells to every leading-edge foundry on Earth, TSM included.
Round 1: net profit margin. TSM keeps more of every dollar
TSM converts 47 cents of every revenue dollar into profit, a 47.00% net margin. ASML converts 30 cents, a 29.71% margin. That's a 17.3-point gap between two companies operating in the exact same industry.
Net margin is what's left after every cost gets paid: materials, labor, R&D, taxes, all of it. It's the cleanest read on how much pricing power a company actually has, and how efficiently it turns revenue into something shareholders can keep.
The reason for the gap here isn't complicated once you follow the supply chain. TSM runs the fabs directly, the most capital-intensive part of the entire chain, and still keeps almost half of every dollar that comes in the door. ASML builds and sells the equipment at a thinner margin, one step removed from the actual chip manufacturing itself.
That doesn't make ASML's margin weak. A 29.71% net margin would be excellent in most industries, it just looks thinner sitting next to TSM's.
Round 2: P/E ratio. TSM is the cheaper stock
A P/E ratio tells you how many dollars investors are paying today for one dollar of a company's annual earnings. TSM trades at a P/E of 23.40. ASML trades at 37.26.
On paper, TSM earns more relative to what investors are paying for it right now, at a noticeably lower price. Growth expectations explain part of the gap: investors are willing to pay more for ASML if they expect its earnings to grow faster from here.
A cheap multiple by itself isn't automatically a green light, and the verdict below explains why that matters. Both companies detail the risk factors behind their respective valuations in their own annual filings. TSM's 20-F filed with the SEC lays out its Taiwan concentration risk in detail, and that risk is part of why the stock trades at a discount to ASML in the first place.
Round 3: return on equity. ASML fights back
Here ASML fights back, and it fights back hard. Its Return on Equity comes in at 49.00%, well above TSM's 31.70%.
P/E ratio tells you what you're paying for a dollar of earnings. ROE tells you something different: how hard a company works with the capital already sitting inside the business, the equity shareholders have put in, not the price you'd pay to buy the stock today.
Think of it as a return on the money already invested in the business, separate from whatever the market decides that business is worth. On that measure, ASML is the sharper operator of the two, even while running the thinner margin of the pair.
The verdict: TSM wins on fundamentals
Two rounds to TSM, one to ASML. On hard fundamentals and valuation, TSM comes out as the clearer of these two 5-star names, and it isn't particularly close.
Context backs that up beyond the three tallied metrics. TSM carries a Health Score of 9.5 against ASML's 8.8, both elite by any standard, but TSM's balance sheet edges out a company most investors already treat as best-in-class in its own right. Risk tells a similar story: TSM's Risk Score sits at 4.0, lower than ASML's 5.4, meaning less historical volatility and a smaller drawdown from its highs. Stoxcraft's current signal reads Buy on TSM and Hold on ASML, which lines up with everything above.
None of that makes ASML the wrong stock to own. Foundry concentration risk in Taiwan is a genuine factor for TSM, and a Risk Score of 4.0 isn't zero just because it beats ASML's. ASML's ROE lead is real too, and for an investor who weighs capital efficiency more heavily than margin, that number matters more than the scoreboard alone suggests.
