Applied Materials vs. ASML: Which Tech Stock Is a Better Buy in 2026?

Erin Kennedy, The Motley Fool

Sun, September 13, 2026 at 3:50 PM GMT+3 6 min read

The surge in artificial intelligence has forced investors to decide between two infrastructure titans, Applied Materials (NASDAQ:AMAT) and ASML Holding N.V. (NASDAQ:ASML). But which of these giants is the better buy today?

Applied Materials provides the diverse tools needed to fabricate complex chip layers, while ASML controls the essential lithography process for high-end semiconductors. They are often compared because they represent the indispensable foundation of the global tech economy, yet they offer very different exposure to the manufacturing cycle.

The case for Applied Materials

Applied Materials provides materials engineering solutions used in the fabrication of microchips. In its latest annual report, filed for the fiscal year ended Oct. 26, 2025, the company highlighted its role in helping manufacturers build smaller and faster processors. Customer concentration is a notable factor, as two major buyers accounted for approximately 19% and 15% of net revenue during that period. Customer concentration like this adds a layer of risk to the business, especially given recent regulatory shifts. The company also maintains a history with Semiconductor Manufacturing International, though it recently settled a $252 million case regarding export violations.

During fiscal 2025, revenue reached nearly $28.4 billion, up roughly 4.4% from the prior year. The company reported net income of approximately $7 billion, which resulted in a healthy net margin of roughly 24.7%. This metric shows how much profit the company keeps from every dollar of sales after all costs are paid. Applied Materials remains a central pillar for those investing in semiconductor stocks, as its growth reflects the broader health of the hardware market.

As of its October 2025 balance sheet, the company maintained a debt-to-equity ratio of approximately 0.3. This ratio, which compares total debt to the money shareholders have invested, indicates Applied Materials holds 30 cents of debt for every dollar of equity. The current ratio is nearly 2.6, indicating the company's ability to cover its short-term liabilities with short-term assets. Free cash flow for the year was approximately $5.7 billion. Free cash flow is the cash left over after a business pays for its operations and capital expenditures, such as new factory tools.

The case for ASML

ASML is the world leader in photolithography, the process of using light to print circuit patterns onto silicon wafers. The company serves the entire semiconductor value chain, including major chipmakers in Europe, Asia, and the United States. It holds a virtual monopoly on extreme ultraviolet (EUV) lithography systems, which are required to produce the most advanced chips on the market. In its latest annual report for the fiscal year ended Dec. 31, 2025, the company emphasized its role as a technology gatekeeper. Because no other company can produce these specific high-end machines, it enjoys serious pricing power.

In fiscal 2025, revenue reached approximately $38.1 billion, a significant increase of roughly 15.6% over the previous year. Net income for the period was nearly $11.2 billion, producing a robust net margin of approximately 29.4%. This strong profitability reflects the high value and specialized nature of its lithography equipment. Growth was driven by the continued rollout of advanced chip nodes for artificial intelligence and high-performance computing applications across the globe.

The company's December 2025 balance sheet shows a debt-to-equity ratio of roughly 0.1. This indicates that total debt is very low compared to shareholder equity, providing ASML with significant financial flexibility. The current ratio is approximately 1.3, which shows the company has enough short-term assets to meet its obligations. Free cash flow was very strong at roughly $12.4 billion for the year. This represents the actual cash generated that can be used for dividends, share buybacks, or further research into next-generation lithography tools.

Risk profile comparison

Applied Materials faces significant geopolitical risks, particularly regarding U.S. export controls on shipments to China. Earlier this year, the company settled for nearly $252 million with the U.S. Department of Commerce due to previous export violations. It also deals with geographic concentration, as much of its revenue comes from customers in Taiwan and Korea. The semiconductor industry is notoriously cyclical, meaning demand for expensive equipment can drop sharply during economic downturns. Additionally, as a global technology leader, Applied Materials faces constant threats from cyberattacks and the potential theft of its intellectual property.

ASML is also heavily exposed to geopolitical tensions, as governments often restrict the sale of its most advanced tools to certain regions. The company manages an incredibly complex supply chain, where a delay in a single component can stall the production of multimillion-dollar machines. It also faces the challenge of developing next-generation technology, such as High-NA EUV, which requires massive research spending. While it has few direct rivals, it must satisfy the exacting demands of giant customers like Taiwan Semiconductor Manufacturing Company (NYSE:TSM), Intel (NASDAQ:INTC), and Samsung (KOSE:A005930). Any shift in the capital spending plans of these large companies could significantly impact ASML's order book.

Valuation comparison

While both companies trade at premium multiples, Applied Materials currently appears more reasonably priced when looking at its future earnings estimates and annual sales.

Valuation metrics sourced from Financial Modeling Prep (FMP) and may differ from other data providers.

Which stock would I buy in 2026?

ASML is in a position most companies would envy. Its EUV lithography systems are absolutely vital for manufacturing the most advanced chips, and it has no real competition in this arena. It's not as though Taiwan Semi or Intel can just opt for a different supplier. As a result, it has significant pricing power.

Applied Materials doesn't have the luxury of such a robust moat. And though past performance is no indication of future results, its stock has trailed ASML shares over the past 10 years.

ASML stock is admittedly more expensive than Applied Materials. But I think ASML's monopoly in EUV lithography warrants a premium; high-end chips simply can't be made without the company's sophisticated equipment. As investor and economist Benjamin Graham said, "Price is what you pay. Value is what you get." ASML looks like the more attractive buy here.

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Erin Kennedy has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Applied Materials, Intel, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

Applied Materials vs. ASML: Which Tech Stock Is a Better Buy in 2026? was originally published by The Motley Fool