AI chips don't build themselves.
From smartphones to cars and powerful AI systems, semiconductors are everywhere. But behind these chips is a complex manufacturing process that demands incredible precision, creating opportunities for companies that supply the technology. That's where ASML(ASML) and Applied Materials(AMAT) come in. Both benefit from the AI boom, but in different ways.
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For dividend investors, that makes this comparison worth a closer look. So, which one offers the better investment today?
Why ASML Holds a Monopoly Every Chipmaker Depends On
ASML is a backbone of the semiconductor industry.
Ever wonder why modern devices are smaller yet more powerful? ASML is a major contributor to that advancement, and there could be exponential growth with the massive AI run.
Based in the Netherlands, the company makes lithography machines, technology that uses light to print tiny, precise circuit patterns onto silicon wafers.
In fact, it's already taking shape through ASML and Intel's High-NA EUV technology, which enables even more precise chipmaking. That technological advantage has helped establish ASML as an industry heavyweight, with a market capitalization of approximately $640 billion.
How Applied Materials Is Cashing In on the AI Chip Boom
Applied Materials is also involved in the semiconductor business, but across a broader range of chipmaking processes. While ASML specializes in printing microscopic circuit patterns, this California-based company makes machines that build and shape the physical layers that form those circuits.
It is also expanding its reach, announcing plans to increase its stake in BE Semiconductor Industries to about 20% and strengthen its position in hybrid-bonding technology for next-gen AI processors.
Despite its broader reach, Applied Materials is about half ASML's size, with a market cap of $330 billion.
They take a different approach but serve the same market; how does that translate into financial performance?
ASML vs. AMAT: One Is Growing Twice as Fast, but at a Price
I used Barchart's Stock Comparison Tool to compare these figures:
ASML takes the lead in the latest quarterly results, with sales up 52.8% year over year to $13.42 billion, versus Applied Materials, whose sales rose 24.8% to $9.12 billion.
That momentum carries over to net income. ASML's earnings more than doubled, jumping 129.9% to $5.71 billion. Applied Materials' net income climbed 42.7% to $2.54 billion.
But the valuation suggests there's a catch.
ASML trades at 35x forward earnings, above the sector's roughly 30.5x average, while Applied Materials trades a little above that level at 31x. The difference is even more pronounced on a price-to-sales basis, with ASML trading at 17x versus AMAT's 11x.
Interestingly, the cheaper stock has performed better this year, despite its slower growth. ASML is up 56.6% year-to-date, while Applied Materials is up 64.1%.
It's been a blow-by-blow contest so far, with neither company pulling decisively ahead. But for income investors, the next round matters most: dividends.
ASML vs. AMAT: Which Chip Stock Pays You More to Own It?
Regular cash payouts are hard to beat. With that, here's how these companies are rewarding their investors:
ASML pays a forward annual dividend of $7.17, for a yield of about 0.44%, and has a dividend payout ratio of 19%.
Meanwhile, Applied Materials pays $2.12 annually, translating to a yield of around 0.54%. Its dividend payout ratio is 17%, slightly lower than ASML's, allowing for more room to grow it.
Competition is close, with Applied Materials having a slight edge: a higher dividend yield and a lower payout ratio. Both companies have modest yields, and they reinvest most of their earnings back into the business.
What Wall Street Analysts Expect From ASML and AMAT Next
A consensus of 27 analysts rates ASML a "Strong Buy," with potential upside of ~71% if it hits its high target prices.
Wall Street is also optimistic about Applied Materials, with 37 analysts rating AMAT a "Strong Buy". The upside ceiling is also higher, at ~113% if it hits its high target prices.
The Verdict: Which Chip Stock Belongs in Your Portfolio?
This comparison is much closer than I expected, which means there are plenty of opportunities for equipment suppliers, and I don't think either ASML or Applied Materials will be left behind. But if I had to pick one today, I'd go with Applied Materials. It has enough growth opportunities on its own, and its stock trades at a lower valuation, too.
On the date of publication, Rick Orford did not directly have a position in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
