Chip Giants TSM and ASML Dominate AI Market with Unbreachable Moats

Chip technology has become an essential component of the expanding artificial intelligence (AI) market. Companies that possess advanced technology have seen their values increase, but often fly under investors' radars due to a lack of name recognition. Two such companies have built unbreachable moats in chip technology: Taiwan Semiconductor Manufacturing (TSM) and ASML.

TSMC's reputation for efficiently producing complex products at scale has made it the go-to company for nearly every AI firm that designs chips, including Apple. The company accounted for an estimated 72.5% of global chip foundry revenue in the second quarter. Its clients include Nvidia, which designs advanced semiconductor chips but farms out almost 100% of fabrication to TSMC.

ASML's moat is even wider and deeper than TSMC's. The company builds complicated machines that only it has the patents and know-how to produce. These machines are integral to manufacturing semiconductor chips, including extreme ultraviolet lithography (EUV) machines that etch microscopic circuitry onto chips.

Both companies have strong moats and should continue to grow revenue and earnings as more chip foundries are built to meet growing demand.