Applied Materials and Lam Research, the semiconductor equipment duopoly powering AI chip fabs, are rallying on sustained capex demand.

Taiwan Semiconductor Manufacturing (TSMC) manufactures chips designed by Nvidia, Broadcom, and other industry giants, making it crucial to the semiconductor ecosystem. However, with most of its manufacturing facilities located in Taiwan—a geopolitical hotspot—investors must account for the possibility of disruption that could cost the company most of its production capacity.

For this reason, some investors may find greater opportunity in semiconductor equipment manufacturers, which face lower geopolitical risk while benefiting from industry growth.

ASML Holding (NASDAQ: ASML) is the sole company that manufactures the extreme ultraviolet lithography (EUV) machines essential for producing TSMC's most advanced chips. Based in the Netherlands, ASML avoids the geopolitical dangers confronting TSMC. With the AI sector projected to grow at a compound annual growth rate of 29% through 2030 according to Grand View Research, ASML's equipment is becoming increasingly valuable. Notably, 29% of the company's revenue in the first half of 2026 came from maintaining these machines, providing recurring revenue streams.

In the first half of 2026, ASML's revenue rose 17% annually, generating net income of nearly 5.7 billion euros ($6.5 billion)—a 22% yearly increase. The stock has appreciated 145% over the past year. While its trailing P/E ratio of 53 appears expensive, the forward P/E of 39 reflects growing profitability, and continued industry expansion should drive demand for ASML's equipment.

Applied Materials (NASDAQ: AMAT) operates differently than ASML. Rather than focusing solely on lithography, Applied Materials manufactures equipment for other chip development steps, including material deposition, etching, and polishing. It faces more competition from companies like Lam Research and KLA, though strong AI chip demand supports growth.

In the first half of 2026, Applied Materials earned $4.8 billion, a 45% increase year-over-year, though most gains came from interest income. Annual revenue growth of 7% in the first half of 2025 lags industry expansion, yet analysts project 18% revenue growth for 2026 and 29% for 2027. The stock has risen over 200% in the past year. With a trailing P/E of 52 and forward P/E of 45, these valuations reflect expanding profitability as investors capitalize on equipment demand.