Better Artificial Intelligence Stock: Nvidia vs. ASML

Artificial intelligence (AI) is rapidly transforming our world, promising to revolutionize everything from human interaction and environmental stewardship to space exploration. This technological revolution, driving us toward what's known as Industry 5.0 (the next phase of industrialization, characterized by human-centric, sustainable, and resilient production through human-machine collaboration), is creating immense opportunities for innovative companies.

Two such companies at the forefront of this AI-powered future are chipmaker Nvidia (NASDAQ: NVDA) and ASML (NASDAQ: ASML), a lithography giant specializing in extreme ultraviolet (EUV) technology. Both have already seen significant growth thanks to the AI boom, but their potential for future returns remains strong.

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Which of these top AI stocks is the better buy right now? Let's break down their core value propositions and risk factors to find out.

Image source: Getty Images.

Nvidia: The chipmaker making the AI revolution possible

Nvidia is the dominant force in AI hardware, powered by its industry-leading graphics processing units (GPUs) and Compute Unified Device Architecture (CUDA) -- a software platform that enables developers to harness GPU computing power for AI applications. This powerful combination creates a wide competitive moat, though competition from other chipmakers and potential alternative AI solutions pose long-term risks.

Beyond hardware, Nvidia is strategically expanding into AI software and robotics, particularly in healthcare, diversifying its revenue streams and strengthening its position in the broader AI ecosystem. However, the emergence of potentially more efficient AI models like China's DeepSeek and the cyclical nature of its gaming GPU business create uncertainty around near-term demand.

Trading at approximately 30 times forward earnings compared to the S&P 500's (SNPINDEX: ^GSPC) 24 times, Nvidia's premium valuation reflects its strong position in the AI market. The tech stock also pays a minimal dividend yield of 0.03%, meaning its shares are better used as a growth vehicle rather than an income generator.

In short, Nvidia's value proposition lies in its AI leadership and ongoing ecosystem expansion, with key risks including competition, evolving AI technologies, and gaming market cycles.

ASML: A monopoly at the heart of the AI boom

ASML is the undisputed leader in lithography equipment, holding a near-monopoly on the crucial extreme ultraviolet (EUV) technology required for manufacturing the most advanced chips. This dominance creates a wide economic moat, driven by substantial R&D investments and deep relationships with key customers like Taiwan Semiconductor Manufacturing (TSMC), Intel, and Samsung, making it incredibly difficult for competitors to emerge.

ASML's machines, while expensive, deliver value to chipmakers by reducing the cost per wafer through increased productivity. The long lifespan of these machines, often exceeding 30 years, generates significant recurring revenue through service contracts and high-margin upgrades, further bolstering ASML's financial strength.

However, ASML's stock trades at a premium to the S&P 500, with a forward earnings multiple of 29.3 times, reflecting its crucial role in the semiconductor industry and the ongoing AI boom. While the stock's dividend yield is a modest 0.95%, the company's growth prospects and dominant market position are the primary drivers of investor interest.

Despite its strong position, ASML faces some risks. The cyclical nature of the semiconductor industry can impact demand for its high-priced equipment. Additionally, increasing geopolitical tensions and potential export restrictions, particularly concerning China, could negatively affect ASML's growth trajectory.

Which stock is the better buy?

While both companies are exceptionally well-positioned in the AI revolution, ASML emerges as the more compelling investment at current valuations. Its monopolistic position in EUV technology makes it essential to all major chipmakers, including Nvidia. This unique market position, combined with its robust recurring revenue model and slightly lower valuation multiple, provides a more balanced risk-reward profile.

Nvidia remains an outstanding company with tremendous growth potential, but its direct exposure to AI market sentiment and gaming cycles introduces more near-term volatility. ASML's fundamental role in semiconductor manufacturing offers a similar tailwind with greater insulation from market swings, making it the better choice for investors seeking AI exposure with a wider margin of safety.

Should you invest $1,000 in ASML right now?

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George Budwell has positions in Nvidia and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Intel, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends the following options: short February 2025 $27 calls on Intel. The Motley Fool has a disclosure policy.