Not Intel. Not Nvidia. These 2 Chip Stocks Maintain an Unbreachable Moat in Advanced Chip Tech.

Chip technology is a huge component of today's expanding artificial intelligence (AI) market. Companies with the most advanced technology end up being valued at a premium and still sometimes fly under most investors' radar. These companies aren't always household names, even if the companies they work with, like Intel and Nvidia, are.

Two stocks in particular have built up an unbreachable moat in chip technology: Taiwan Semiconductor Manufacturing (NYSE: TSM) and ASML (NASDAQ: ASML). Both of these companies have technology and production capacity unmatched in their industry. Intel and Nvidia may have the name recognition, but these two have unbreachable moats and could make for fantastic long-term investments. Here's a bit more about each.

Taiwan Semiconductor Manufacturing

TSMC has become one of the world's most important companies. While Nvidia designs the advanced semiconductor chips it sells, it farms out almost 100% of the fabrication to TSMC. TSMC has a reputation for efficiently producing these complex products at scale.

And Nvidia isn't TSMC's only client. Nearly every AI company that designs chips uses TSMC's foundry, including Apple.

TSMC has a nearly unbreachable moat for two reasons. First, it's always one of the first companies to roll out cutting-edge technology. Second is its ability to scale production. During the second quarter, it accounted for an estimated 72.5% of global chip foundry revenue. Even if its clients wanted to switch away for some reason, finding a competitor that can efficiently manufacture the chips it designs at the same scale is nearly impossible.

That has helped it build up an unbreachable moat. Even Intel, a primary competitor, sometimes turns to TSMC to help it fulfill chip orders. This makes TSMC one of the top stocks to own in the AI race, since it's bound to do well regardless of which chip happens to be the most powerful at the time.

ASML

ASML's moat is actually wider and deeper than TSMC's. ASML builds complicated machines that only it has the patents and know-how to produce. That's a global competitive advantage built through decades of research and partnerships, and it's unlikely to be matched by any company or country anytime in the near future.

ASML builds the machines that are integral to manufacturing semiconductor chips, including extreme ultraviolet lithography (EUV) machines that etch the microscopic circuitry onto chips. These circuits can be as little as 2 nanometers apart. Without these machines, a major client like TSMC wouldn't be able to manufacture the advanced chips it does today. Chip technology would be in a different place, and that makes it one of the most important companies in the world.

Both stocks have performed well over the years, and the high demand for each has led to periods of expensive valuations. At the moment, ASML is more expensive than TSMC when evaluating its forward price-to-earnings ratio. But neither stock's valuation is out of line with its average over several years.

Data by YCharts; PE = price to earnings.

Both companies have strong moats, and with more chip foundries being built to meet growing demand, they should continue to grow revenue and earnings.

These stocks are great investments, but with TSMC's price tag being a bit cheaper, I'm inclined to say it's the better pick right now if you can only buy one. But I don't think investors can go wrong with either stock, since AI wouldn't happen without these two companies.

Keithen Drury has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Apple, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.