Arm vs. ASML: Which Semiconductor Stock Is a Better Buy in 2026?
2026-10-01 18:37
•Sara Appino •The Motley Fool
••••• •• Axe Cap view
ASML vs Arm: Which Chip Play Fits SA Investors in 2026?
Between Arm’s high-margin chip designs and ASML’s monopoly in lithography, South African investors might find more clarity betting on ASML.
The semiconductor sector is a global puzzle with few perfect local proxies, but the USD/ZAR exchange rate often swings to the tune of tech fortunes. Arm, with its standout 93% gross margin and focus on chip design royalties, looks great on paper but sports a stratospheric P/E near 300. Such lofty valuation demands near-perfect execution and continuous growth in mobile and data center AI—which carries risk if rivals or shifts in demand hit hard. ASML, by contrast, manufactures the only extreme ultraviolet lithography machines used in advanced chip production. This manufacturing bottleneck gives it a near-monopoly that’s hard to disrupt, backed by solid 15% revenue growth and a much more reasonable P/E of 56. For South African investors, ASML’s steady cash flows and structural scarcity in the supply chain make it a safer, more tangible exposure to the global chip cycle. The risk? Global supply chain shocks or a slowdown in chip capital spending could hit ASML’s order book hard. this is just our opinion and not financial advice
Given current valuations and the USD/ZAR outlook, I’d lean towards a selective position in ASML through global ETFs or ADRs, while watching Arm from the sidelines until more attractive entry points emerge.
- ASML
- USD/ZAR
- Slower global semiconductor capital expenditure
- Volatility in USD/ZAR impacting returns
6/10
The article compares Arm Holdings and ASML as semiconductor investment options. Arm licenses chip designs with a high-margin business model (93.88% gross margin, P/E 297.15), while ASML manufactures essential lithography equipment with a monopoly position (52.73% gross margin, P/E 56.35). The author recommends ASML due to its irreplaceable role as the sole provider of extreme ultraviolet lithography machines critical to advanced chip production, despite Arm's consistent growth in mobile and data center segments.
Our take is based on reporting first published by The Motley Fool.