Choosing between Applied Materials (NASDAQ:AMAT) and Advanced Micro Devices (NASDAQ:AMD) means weighing a highly profitable chip equipment supplier against a faster-growing chip designer.

Applied Materials makes the equipment that chip factories use to produce semiconductors. AMD designs processors for products ranging from game consoles to large data centers and relies on outside foundries to manufacture them. Both sell into the demand that has drawn investors to artificial intelligence (AI) stocks, but they offer very different risk and reward profiles.

The case for Applied Materials

Alongside its manufacturing equipment, Applied Materials sells related services and factory automation software. The company occupies a highly technical niche among semiconductor stocks, selling to the large manufacturers that fabricate chips. That customer base is concentrated, and two customers accounted for approximately 19% and 15% of net revenue in fiscal 2025, which ended in October 2025.

In fiscal 2025, revenue reached nearly $28.4 billion, up about 4.4% from the previous year. The company reported net income of roughly $7.0 billion for the same period. Revenue and pre-tax income both rose, but the net margin, which measures how much profit is kept from every dollar of sales, declined to approximately 24.7% from 26.4% as the provision for income taxes more than doubled.

As of Oct. 26, 2025, the debt-to-equity ratio was roughly 0.3x. That ratio compares total debt with shareholders' equity, and a figure this low points to a conservative approach to borrowing. The current ratio, which compares short-term assets to short-term liabilities, was approximately 2.6x. Free cash flow, which the company calculates as operating cash flow minus capital expenditures, totaled nearly $5.7 billion for the fiscal year.

The case for Advanced Micro Devices

AMD designs processors for data centers and personal computers, as well as the semi-custom chips inside game consoles. A small number of customers account for a large share of its revenue, and cloud and hyperscale data center operators buy a substantial portion of its data center products.

In October 2025, AMD signed an agreement with OpenAI to deploy 6 gigawatts of its graphics processing units (GPUs), and in February 2026 it announced a similar agreement with Meta Platforms (NASDAQ:META) covering up to 6 gigawatts. Its chips also power the PlayStation 5 from Sony (NYSE:SONY) and the Xbox Series S and X consoles from Microsoft (NASDAQ:MSFT).

In 2025, revenue reached about $34.6 billion, up about 34.3% from the previous year. Growth came from the data center segment, where revenue rose 32%, and from the client and gaming segment, where it rose 51%. Net income for the period was roughly $4.3 billion, with a net margin of about 12.5%, held down in part by research and development spending, which rose about 25% to $8.1 billion.

As of Dec. 27, 2025, the debt-to-equity ratio was approximately 0.05x on a total debt-to-shareholders' equity basis. The current ratio stood at nearly 2.9x, indicating ample capacity to cover short-term obligations. Free cash flow for the year was roughly $5.5 billion under AMD's own definition, which starts with operating cash flow from continuing operations and subtracts capital expenditures.

That measure excludes about $1.2 billion of operating cash flow from discontinued operations, the ZT Systems manufacturing business that AMD sold in October 2025. Stock-based compensation of about $1.6 billion equaled roughly 25% of operating cash flow from continuing operations. Because it is a non-cash expense added back to cash flow in the cash flow statement, it increases reported cash generation.

Risk profile comparison

Applied Materials faces significant risks from evolving export controls and trade policies, particularly those involving China, which accounted for about 30% of its revenue in fiscal 2025. On Feb. 11, 2026, the company agreed to pay $252.5 million to the U.S. Commerce Department to resolve allegations that certain customer shipments to China between November 2020 and July 2022 did not comply with export regulations.

The Justice Department and the Securities and Exchange Commission closed their related investigations without action. The semiconductor industry has also historically been cyclical. The company says AI-related demand is difficult to forecast, and shifting demand can pressure its margins and cash flow.

AMD sells into highly competitive markets against rivals such as Nvidia (NASDAQ:NVDA) and Intel (NASDAQ:INTC). The company relies on third parties to manufacture its chips, including Taiwan Semiconductor Manufacturing (NYSE:TSM) and GlobalFoundries (NASDAQ:GFS), so any disruption at these foundries would directly affect its ability to deliver products. U.S. export controls on its Instinct MI308 data center GPUs also restrict sales to China, and AMD's 2025 results included approximately $440 million of net inventory and related charges tied to those controls.

Dilution is another risk for AMD shareholders. The company has issued warrants to OpenAI and Meta Platforms, each covering up to 160 million shares at an exercise price of $0.01 per share, that vest as the customers reach GPU purchase milestones and AMD's stock reaches specified price targets.

Together, the warrants equal about 20% of the roughly 1.63 billion shares outstanding as of late July 2026, and none had vested as of June 27, 2026. On Sept. 28, 2026, AMD also announced an agreement to acquire World Labs, an AI model and research lab, in an all-stock transaction valued at approximately $8.2 billion.

Valuation comparison

Applied Materials carries the lower forward price-to-earnings (P/E) and price-to-sales (P/S) ratios, and AMD grew revenue much faster in 2025.

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

Which stock would I buy in 2026?

Applied Materials looks like the better buy to me, though I'd treat it as a position to add to over time. Chip equipment demand moves in cycles, and the stock has already more than doubled in the past year.

What tips the comparison is how each business has trended since the full-year figures above. Applied Materials reported record revenue for its fiscal third quarter on Aug. 13, 2026. The midpoint of management's guidance for the quarter ending in October implies sales growth of about 50% from a year earlier, roughly twice the pace it posted just a year ago. AMD's revenue also grew about 50% in its second quarter, but its Aug. 4 outlook points to somewhat slower growth in the third quarter. The growth gap that supports AMD's richer multiples appears to be narrowing.

AMD shareholders also face a dilution question that Applied Materials shareholders don't. The warrants from OpenAI and Meta Platforms could add about a fifth to the share count if every milestone is met, and the pending World Labs purchase would be paid for in stock. The warrants are tied to large chip orders, so the trade may prove worthwhile, but it raises the bar for per-share results.

None of this makes AMD a stock to avoid. It is the bigger business with more direct exposure to AI computing, and for investors who hold a diversified portfolio for five years or more, there's room to own both.

Mike Schwenk has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Advanced Micro Devices, Applied Materials, Globalfoundries, Intel, Meta Platforms, Microsoft, Nvidia, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

ASML Holding (NASDAQ: ASML) and Applied Materials (NASDAQ: AMAT) are both benefiting from the artificial intelligence (AI) chip boom but in very different ways.

ASML's extreme ultraviolet (EUV) lithography machines are used to print the most complex circuits in leading-edge chips. As chipmakers pack more computing power into smaller chips, they need more precise manufacturing equipment. This trend has been driving demand for ASML's systems.

Applied Materials is also playing a crucial role in manufacturing advanced chips. The company supplies equipment used at several stages of chip production, including creating and shaping materials, checking for defects, and packaging chips together. Demand for these tools is rising as AI chips become more complex and increasingly use technologies such as high bandwidth memory and advanced packaging.

Let's see which stock is the better choice for investors right now.

Image source: Getty Images.

ASML's impressive demand visibility

ASML's position as the only commercial supplier of EUV lithography systems is well established. The company has exceptionally strong visibility into demand for 2027. Revenue rose by nearly 21.2% year over year to 9.3 billion euros in the second quarter of 2026 (ending June 28). The company expects net sales in 2026 to fall in the range of 43 billion to 45 billion euros.

Low-NA EUV, ASML's current-generation extreme ultraviolet lithography technology, is used to print extremely small circuit patterns on advanced chips. The company expects to increase low-NA EUV capacity by roughly 30% in 2027, from around 65 systems in 2026. Yet management says it is already close to receiving all the low-NA EUV orders it needs for 2027. This suggests production capacity, rather than a lack of customer orders, could become the bigger near-term constraint.

ASML's newer High-NA EUV technology is another potential growth driver. High-NA EUV allows chipmakers to print even smaller and more precise features on advanced chips than ASML's current EUV systems. This technology is already moving into commercial production.

Intel is using High-NA EUV on selected layers of chips made with its Intel 18A manufacturing process. The company says it has already begun shipping the first high-volume logic product manufactured using High-NA EUV.

Applied Materials has multiple AI-powered growth drivers

Applied Materials is particularly well-positioned in some of the fastest-growing areas of semiconductor equipment spending. The company says that leading-edge chip manufacturing, DRAM memory, and advanced packaging are driving roughly 80% of the growth in wafer fabrication equipment spending.

Financial results were also impressive. The company's revenue jumped 25% year over year to $9.1 billion, while generally accepted accounting principles (GAAP) earnings per share rose 43% year over year to $3.17 in the third quarter of fiscal 2026 (ending July 26). Management also expects advanced packaging revenue to grow more than 70% in calendar 2026.

Hence, Applied Materials is benefiting not only from customers making more chips but also from the increasing complexity of AI chips, which require more manufacturing steps.

However, investor expectations also seem to have risen sharply. Shares of Applied Materials have soared by nearly 89.4%, while ASML stock is up by roughly 65.6% so far in 2026 (as of Sept. 28). Applied Materials' shares also fell more than 5% after its third-quarter earnings report, even though the company reported strong growth and issued revenue guidance above Wall Street's expectations.

Reuters attributed the decline to already-high investor expectations. This suggests the market may now require more than just strong results from the company.

China creates different risks for the two companies

Both technology companies face restrictions on selling certain advanced chipmaking equipment to China, but the risks differ significantly for each.

ASML expects China to account for around 20% of its total 2026 sales. China has also started producing its own immersion deep ultraviolet (DUV) lithography machines, an older but still widely used technology for printing circuit patterns on chips. However, Reuters reported that these systems are still being tested and remain behind ASML's technology and reliability.

Applied Materials also has significant exposure to China. China accounted for 28% of the company's total revenue in the third quarter. The company also faces a more immediate competitive threat from Chinese equipment makers in some of its core markets.

Reuters reported that Samsung Electronics and SK Hynix have been testing equipment from Chinese chip-equipment maker Advanced Micro-Fabrication Equipment at their factories in China. Chinese suppliers are making progress in areas such as etch and deposition, where Applied Materials also competes.

Hence, ASML could eventually face greater competition in DUV lithography, but China still lacks a commercial alternative to its advanced EUV systems. Applied Materials faces a more immediate threat, since Chinese suppliers are already gaining ground in some of the etch and deposition markets where it competes.

Which stock is a better pick over the next year?

ASML is trading at roughly 30.8 times forward one-year earnings, compared with about 27.4 for Applied Materials (as of Sept. 28). Yet analysts expect the consensus EPS to grow roughly 35% year over year for ASML and almost 44.3% for Applied Materials in the next fiscal year. So Applied Materials appears to be offering faster expected growth at the lower valuation multiple.

Hence, for the next year, Applied Materials seems to be a better pick. ASML offers stronger demand visibility and a harder-to-replicate moat, but Applied Materials' lower valuation and faster expected earnings growth make it a more attractive short-term pick. But investor expectations are already high, so Applied Materials will need to keep delivering strong results to see robust share price returns in the next year.

Manali Pradhan, CFA has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Applied Materials, and Intel. The Motley Fool has a disclosure policy.

Should you invest in the machines that build the chips or the company that designs them? Choosing between Applied Materials (NASDAQ:AMAT) and Broadcom (NASDAQ:AVGO) depends on your specific goals for 2026.

Applied Materials provides the heavy-duty equipment required to manufacture modern semiconductors, while Broadcom focuses on designing chips and enterprise software. Both companies are essential to global technology infrastructure, but they offer different paths to growth. This comparison evaluates their financials and risks to help you decide which stock is a better buy.

The case for Applied Materials

In its latest annual report, filed for the fiscal year ended in late 2025, Applied Materials described its leadership in materials engineering for the semiconductor industry. The company provides the essential equipment and software used by major manufacturers like Taiwan Semiconductor Manufacturing Company (NYSE:TSM) to build advanced chips. Customer concentration like this adds a layer of risk to the business, as two primary customers accounted for approximately 19% and 15% of its fiscal 2025 net revenue.

In FY 2025, revenue reached nearly $28.4 billion, indicating a growth rate of roughly 4.4% compared to the previous year. The company reported net income of approximately $7.0 billion for the same period. While revenue grew, net income slightly trailed the $7.2 billion reported in the prior fiscal year, reflecting slightly tighter net margins.

As of its October 2025 balance sheet, the debt-to-equity ratio was roughly 0.3x. This ratio measures total debt against shareholder equity, helping you understand how the company funds its operations. The current ratio, which measures the ability to cover short-term bills with current assets, was close to 2.6x. Free cash flow for the year was nearly $5.7 billion, representing the cash remaining after the business paid for its daily operations and equipment investments.

The case for Broadcom

In its latest annual report, Broadcom highlighted its evolution into a diversified infrastructure giant. The company is a key player among semiconductor stocks, designing chips for networking and wireless communication while expanding its software footprint. Major commercial developments include a massive chip commitment with Apple (NASDAQ:AAPL) and the integration of VMware to serve enterprise clients.

In FY 2025, revenue reached nearly $63.9 billion, representing a significant increase of approximately 23.9% over the previous year. Net income for the period was roughly $23.1 billion, a sharp rise from the $5.9 billion reported in FY 2024. This growth was largely driven by the full-year inclusion of software acquisitions and robust demand for artificial intelligence networking components.

As of its November 2025 balance sheet, the debt-to-equity ratio was approximately 0.8x. The current ratio was nearly 1.7x, suggesting a healthy balance between liquid assets and upcoming liabilities. Free cash flow for the fiscal year was close to $26.9 billion. Note that stock-based compensation represented roughly 27.5% of operating cash flow, which inflates reported cash generation since SBC is a non-cash expense added back in the cash flow statement.

Risk profile comparison

Applied Materials faces significant risks from international export controls, particularly regarding technology sales to China. These regulations can disrupt supply chains and limit access to one of its largest markets. Furthermore, the company is sensitive to the capital expenditure cycles of a small number of customers, making its revenue potentially volatile when those manufacturers reduce spending.

Broadcom relies heavily on a limited group of distributors and end customers, with five large buyers generating nearly 40% of its total revenue. The successful integration of large acquisitions like VMware is critical to its strategy, but it carries risks of legal costs and management distraction. The company also faces active antitrust scrutiny from regulators in the European Union regarding its software licensing practices.

Valuation comparison

Broadcom appears more attractively valued based on its lower multiple of future earnings estimates, while Applied Materials trades at a lower multiple of its total sales.

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

Which stock would I buy in 2026?

I'd go with Broadcom. Its custom AI accelerator business has become one of the most sought-after partnerships in the semiconductor industry, with supply commitments already secured to double AI revenue again next year. A customer roster that includes Google, Meta, OpenAI, and Anthropic is about as strong an endorsement as the AI industry offers, and free cash flow continues to expand alongside revenue.

Applied Materials is a well-run business with broad exposure across chip manufacturing equipment, and AI-driven demand for advanced semiconductors is pulling its orders forward. For investors who want diversified exposure to the chip manufacturing build-out without betting on any single end market, it is a solid choice.

But Applied Materials operates in a competitive landscape where customers have alternatives. Broadcom's hyperscaler relationships are deeper and harder to replicate, since once a major cloud company has designed its custom AI chip around Broadcom's architecture, the switching costs are enormous.

While most equipment companies win business one order at a time, Broadcom gets designed into the chip itself, which means the relationship only deepens as the customer scales. For a long-term investor, that compounding dynamic is very enticing.

Sara Appino has positions in Apple and Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends Apple, Applied Materials, Broadcom, Meta Platforms, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.

As the artificial intelligence boom shifts from hype to hardware, choosing between Applied Materials (NASDAQ:AMAT) and ASML(NASDAQ:ASML) requires understanding the specialized tools that make modern computing possible.

These giants operate at different stages of the manufacturing process. While one provides a broad suite of materials engineering tools, the other holds a near-monopoly on the machines that print patterns on advanced chips.

The case for Applied Materials

Applied Materials sells a wide variety of equipment used to deposit, remove, and modify materials on silicon wafers. Its customers include global leaders in the foundry, logic, and memory markets who depend on these tools to build complex chip architectures. In fiscal 2025, two customers accounted for approximately 19% and 15% of net revenue, respectively, while a partnership with TSMC supports critical technology requirements for artificial intelligence.

In FY 2025, revenue reached nearly $28.4 billion, which represents growth of approximately 4.4% compared to the prior year. The company reported net income of close to $7.0 billion for the same period, demonstrating its ability to remain consistently profitable in a shifting market. This resulted in a net margin of 24.7%, which is a measure of how much profit is kept from every dollar of sales after all expenses are paid.

As of its October 2025 balance sheet, the debt-to-equity ratio was roughly 0.3x, which compares total debt to shareholder equity to show conservative borrowing levels. The current ratio, measuring the ability to pay short-term debts with short-term assets, was approximately 2.6x. Free cash flow, or the cash remaining after paying for capital expenditures, totaled nearly $5.7 billion and supports the company's ongoing research and development efforts along with its shareholder returns.

The case for ASML

ASML is the sole global provider of extreme ultraviolet (EUV) lithography systems used to print incredibly small patterns on the most advanced chips. By supplying these mission-critical machines to the broader semiconductor stocks landscape, the company has become an essential partner for every major manufacturer. Its proprietary technology is fundamental to the production of high-performance processors used in artificial intelligence and sophisticated mobile devices that require massive computing power.

In FY 2025, revenue reached close to $37.1 billion, representing growth of roughly 15.6% over the prior year. The company reported net income of approximately $10.9 billion during this fiscal year, showing substantial growth in its bottom line. It achieved a net margin of 29.4%, which shows that the business converts a high percentage of sales into actual profit for its shareholders after accounting for all operating costs.

As of its December 2025 balance sheet, the debt-to-equity ratio was approximately 0.1x, which indicates a very light debt load compared to its equity base. The company maintained a current ratio of roughly 1.3x, which compares short-term assets to short-term liabilities to assess the company's immediate liquidity. Free cash flow for the fiscal year reached nearly $12.1 billion, providing the company with ample capital to develop the next generation of high-aperture lithography machines.

Risk profile comparison

Applied Materials faces ongoing costs and scrutiny regarding export control compliance, including a $252 million settlement in February 2026. The business is highly sensitive to geopolitical trade tensions between the U.S. and China, which can disrupt supply chains. Furthermore, its reliance on a few large customers like Intel (NASDAQ:INTC) and competition from firms like KLA (NASDAQ:KLAC) makes it vulnerable to shifts in spending cycles.

ASML operates under strict export restrictions that limit its ability to sell advanced systems to certain markets, particularly China. Because its machines are incredibly complex, any disruption in its global supply chain can significantly delay deliveries and impact revenue. Additionally, the high cost of its next-generation machines may lead to slower adoption by customers like Advanced Micro Devices (NASDAQ:AMD).

Valuation comparison

Applied Materials looks cheaper than ASML based on its Forward P/E, which tracks price against earnings estimates, and its P/S ratio measuring sales over the past twelve months.

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

Which stock would I buy in 2026?

Although both companies are extraordinary, ASML is the clear winner here. Its position in the semiconductor industry is unlike almost anything else in the market: It is the only company in the world that makes the EUV machines needed to produce the most advanced chips. Every chipmaker racing to build AI hardware, from TSMC to Samsung to Intel, depends on ASML's equipment to do it. That kind of monopoly position is extraordinarily rare.

The most recent quarter backed that up convincingly. Revenue grew more than 20% year over year, the company raised its full-year outlook substantially, and AI-driven demand for advanced logic and memory chips keeps pulling orders forward.

Applied Materials is a strong business with broad exposure across chip manufacturing equipment. But it operates in a more competitive landscape where customers have alternatives. ASML has no real competition at the cutting edge of chip manufacturing. For investors thinking in years rather than quarters, owning that kind of irreplaceable position in the global technology supply chain is a straightforward long-term thesis.

Sara Appino has positions in Taiwan Semiconductor Manufacturing. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Applied Materials, Intel, KLA, and Taiwan Semiconductor Manufacturing. The Motley Fool has a disclosure policy.