Taiwan Semiconductor and ASML Are Incredible, but 1 of These Monopoly Chip Stocks Is Far Safer.

There are few companies on the market more impressive than Taiwan Semiconductor Manufacturing (NYSE: TSM) and ASML Holding (NASDAQ: ASML). Both are essentially monopolies for different reasons, but each is an incredible business and has rewarded shareholders with strong stock performance.

However, these two aren't the same from an investment standpoint. One is far safer, and it all boils down to how much success is priced into the stock. I think Taiwan Semiconductor is the far safer bet for multiple reasons, making it the better investment right now. Here's why.

How are these two monopolies?

There are different types of monopolies, and not all of them are viewed the same way. When it comes to monopolies, ASML is about as good as it gets. It is the only company in the world with the technology to make extreme ultraviolet (EUV) lithography machines. These machines are about as big as a school bus and cost hundreds of millions of dollars.

EUV machines are used by chip fabricators, such as Taiwan Semiconductor, to lay down tiny electrical traces on chips. These traces are microscopic and have spacing as little as 2 nanometers (nm) apart. For reference, a human hair is 80,000 to 100,000 nanometers across. With ASML being the sole supplier of a critical machine in the chip manufacturing world, it has a very solid technological monopoly that will be nearly impossible to break.

Taiwan Semiconductor's monopoly status is a bit more shaky but still impressive. There are several other chip foundries out there, and many have the same advanced technology available to make the highest-performance chips possible. However, nobody has the scale that TSMC does.

During Q2, Taiwan Semiconductor accounted for about 72.5% of revenue in the chip fabrication industry. That's a major size advantage that holds its clients captive, because they couldn't move all of their work to another foundry if they tried, since its competitors wouldn't have the necessary scale.

While this advantage could be challenged over time by a rising competitor, there's nobody even close right now. TSMC has great relationships with its clientele, so I doubt its grip on this industry will be broken anytime over the next decade.

While I would say ASML's monopoly status is stronger than TSMC's, I can't say the same about their businesses or stocks.

ASML is on shakier ground than TSMC

ASML's business model requires its clients to expand production capacity to sell more machines. While it makes revenue servicing these machines every year, it's not nearly as much as outright selling them.

Business is good for ASML right now because every chip manufacturer (including TSMC) is racing to expand production capacity to meet demand from the AI build-out. However, once the AI build-out is complete, there may not be a need to expand chip production capacity for some time, which could harm ASML's business.

At the same time, while TSMC may not be growing, there could be other technologies that require a substantial number of chips, such as humanoid robots, physical AI, or self-driving cars. That would allow Taiwan Semiconductor to maintain the business size it has achieved, making it a better long-term investment. However, none of this is reflected in the stock's valuation.

TSM PE Ratio (Forward) data by YCharts

ASML trades at a sizable premium to Taiwan Semiconductor when using 2026 earnings estimates. That same trend persists when 2027 earnings are used.

TSM PE Ratio (Forward 1y) data by YCharts

So, ASML is a more expensive stock but with a less certain long-term demand outlook. While monopoly stocks may be safer, I'm more concerned about how they will fare when the current demand wave wraps up. As a result, I think Taiwan Semiconductor is a far safer investment option.

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