ASML Holding ASML and Applied Materials AMAT stand out as pivotal players in the semiconductor supply chain, each offering unique contributions to chip manufacturing. ASML dominates the lithography market with its exclusive extreme ultraviolet (EUV) systems, essential for producing advanced semiconductors. In contrast, Applied Materials offers a comprehensive range of equipment and services spanning various stages of semiconductor fabrication.

With the artificial intelligence (AI) boom to continue driving growth for the semiconductor industry, the question remains: Which stock makes for a better investment pick today? Let’s break down their fundamentals, growth prospects, market challenges and valuation to determine which offers a more compelling investment case.

The Case for ASML Holding

ASML Holding’s dominance in the semiconductor manufacturing sector is unchallenged. The company holds a near-monopoly on extreme ultraviolet (EUV) lithography, a cutting-edge technology essential for producing the most advanced chips.

This technology enables the semiconductor industry to continue progressing to smaller, more powerful nodes, such as 3nm and below. Although the high cost of EUV machines limits the pool of customers, ASML Holding’s leadership ensures that it remains the go-to provider for major semiconductor manufacturers, including Taiwan Semiconductor Manufacturing Company, aka TSMC, Samsung and Intel.

ASML Holding’s investment in next-generation technologies, such as High-NA EUV, signals that it is preparing for the future. High-NA EUV systems, designed for even smaller nodes, are expected to be essential for the semiconductor industry’s continued evolution.

Regarding ASML Holding’s financial strength, its latest results for the fourth quarter of 2024 showcased remarkable growth, with revenues and earnings rising 24% and 30%, respectively, year-over-year. A major strength for ASML Holding is its record backlog of €36 billion, which provides strong visibility into future revenues. Its revenue growth guidance of 46.5% for the first quarter and 15% for the full year 2025 indicates continued growth momentum in the near term.

On the flip side, one of ASML Holding’s most pressing challenges is increasing geopolitical risk, particularly export restrictions on semiconductor equipment to China. The Dutch government, under U.S. pressure, has imposed strict limits on ASML’s ability to sell its most advanced lithography tools to Chinese customers, affecting potential revenue growth from one of its largest markets. China accounted for about 41% of ASML Holding’s lithography shipments in 2024, which means any additional trade restriction could further reduce sales opportunities.

The Case for Applied Materials

Applied Materials is the world’s largest supplier of semiconductor fabrication equipment, covering deposition, etching and inspection — key processes in chip manufacturing. The company’s long-term growth prospects remain highly compelling, thanks to its leadership in AI-driven semiconductor technology. AI chip demand is fueling a new wave of semiconductor investments, and Applied Materials is positioned at the forefront of this trend. The company’s expertise in gate-all-around (GAA) transistors, high-bandwidth memory (HBM) and advanced packaging makes it a critical supplier for AI chipmakers.

In fiscal 2024, Applied Materials’ revenues from advanced semiconductor nodes surpassed $2.5 billion. Management expects this figure to double in fiscal 2025, fueled by increasing customer adoption of GAA and backside power delivery solutions. These factors are driving AMAT’s financial performance. In its latest first-quarter fiscal 2025 results, revenues and non-GAAP EPS improved 7% and 12%, respectively.

Nonetheless, Applied Materials is grappling with some challenges that are likely to weigh on its near-term prospects. The U.S. government’s export restrictions on semiconductor equipment sales to China have raised concerns about the company’s revenue stability. During its first-quarter earnings call, Applied Materials stated that these restrictions would reduce fiscal 2025 revenues by $400 million, with half of this decline affecting the second-quarter performance.

The company also acknowledged a slowdown in the IoT, Communications, Automotive, Power, and Sensors (“ICAPS”) segment, which had been a key growth driver in recent years. Moderating growth at ICAPS after a strong 2023-2024 cycle makes us wary of a potential drag on AMAT’s overall performance.

These near-term challenges were well reflected in the company’s guidance for the second quarter. Management’s projections of $7.1 billion (± $400 million) for revenues and $2.30 (± 18 cents) for non-GAAP EPS were below the Zacks Consensus Estimate.

Price Performance and Valuation of ASML & AMAT

Year to date, ASML Holding’s shares have lost 10.1%, less than the decline of 16.7% in Applied Materials’ shares.

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ASML is trading at a forward earnings multiple of 23.56X, way below its median of 30.04X, over the past three years. AMAT’s forward sales multiple sits at 14.13X, significantly lower than its median of 18.14X over the past three years.

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ASML Holding does seem pricey compared with Applied Materials. ASML’s valuations also reflect its high growth expectations and improving profitability. If the company sustains its execution, the premium could be warranted.

How Do Estimates Compare for ASML & AMAT?

The Zacks Consensus Estimate for ASML Holding’s 2025 sales and EPS implies year-over-year growth of 12.4% and 21.9%, respectively. The EPS estimates for 2025 and 2026 have been trending northward over the past 30 days.

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The Zacks Consensus Estimate for Applied Materials’ fiscal 2025 sales and EPS implies a year-over-year increase of 6% and 8.2%, respectively. The EPS estimates for fiscal 2025 and fiscal 2026 have been revised downward over the past 60 days.

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Conclusion

Both ASML Holding and Applied Materials are essential players in the semiconductor industry, but ASML has a stronger growth profile and an unmatched monopoly in EUV technology. While AMAT trades at a lower valuation and benefits from diverse semiconductor equipment offerings, its growth outlook is more uncertain due to the slowing growth at the ICAPS segment and the escalating U.S.-China trade war.

ASML Holding’s dominance in EUV lithography gives it a long-term competitive edge and its strong order backlog suggests sustained revenue and earnings expansion. Investors willing to pay a premium for market leadership and superior profitability should favor ASML over Applied Materials for long-term gains.

While ASML carries a Zacks Rank #2 (Buy), AMAT has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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