Semiconductor makers like Taiwan Semiconductor and Intel rely on sophisticated equipment to produce chips at scale.
A profound competitive advantage is a great sign that a company’s stock may be worth purchasing.
Strong free cash flows and low debt-to-equity ratios are green lights when I’m investigating potential stock buys.
10 stocks we like better than ASML ›
Unlike chefs, who can prepare savory meals without precisely measuring ingredients, pastry chefs require exactness when crafting their sweet treats. Just a little too much of one ingredient — or not enough of another — can be the difference between pastry perfection and dessert disaster.
Similarly, the companies that manufacture the sophisticated semiconductors capable of handling artificial intelligence (AI) applications also require meticulous levels of precision in order to sustain high-volume production of those chips. For this reason, ASML (NASDAQ: ASML) is high on my buy list. The company plays a pivotal role in the semiconductor industry, and I’ve long recognized its stock as a compelling way to expand my AI industry exposure.
I plan to open a position in the coming weeks, and once it’s initiated, I intend to click the buy button on ASML stock again during any dips.
Designing cutting-edge semiconductors — the wheelhouse of companies like Nvidia and AMD — is no small feat, yet it means little unless foundries can produce those chips at scale. This is where ASML comes in.
While ASML provides a variety of equipment, software, and services to enable the large-scale fabrication of microchips, the products that make it most appealing to investors are its extreme ultraviolet (EUV) lithography machines. These machines use light at a 13.5-nanometer wavelength to print the most sophisticated chip designs on the market, making them indispensable tools for foundry operators like Taiwan Semiconductor Manufacturing and Intel.
ASML is the only company capable of building EUV machines, giving it an unparalleled position in the chip industry and providing it with a robust competitive advantage over its rivals.
It’s hard to argue with the allure of ASML, as it has a technological monopoly in a niche that is vital to the tech sector. The company’s fundamentals further illustrate why its stock will be worth holding for the long term as the AI industry develops.
For one, the company generates extremely strong cash flow. In 2024 and 2023, for example, ASML reported free cash flow of $7 billion and $6.9 billion, respectively, according to Morningstar. Its results are even more impressive when stacked up against its semiconductor equipment peers, Lam Research and Applied Materials.
