Chip Stocks Have Soared by 157% Over the Past Year. Here Are 2 Top Stocks to Buy Before the Semiconductor Industry Soars Past $1.5 Trillion in 2027
Chip Stocks Have Soared by 157% Over the Past Year. Here Are 2 Top Stocks to Buy Before the Semiconductor Industry Soars Past $1.5 Trillion in 2027
Harsh Chauhan, The Motley FoolThu, July 2, 2026 at 3:07 PM UTC
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Key Points -
TSMC stock has more than doubled over the past year, and its position as the largest semiconductor foundry suggests it can deliver further gains to investors.
ASML is the only supplier of advanced chipmaking equipment deployed by TSMC and others, and that's going to accelerate the company's growth.
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The semiconductor industry is playing an instrumental role in the proliferation of artificial intelligence (AI). The training and deployment of AI models and inference applications wouldn't have been possible without chips, which explains why semiconductor companies have witnessed terrific growth in revenue and earnings in recent years.
Moreover, chips are also needed to run AI workloads locally on edge devices such as smartphones, personal computers (PCs), vehicles, robots, and drones, among other things. So, it is easy to see why the semiconductor industry's revenue is anticipated to jump by 64% in 2026 to $1.32 trillion, according to Gartner. Even better, the industry's revenue is expected to cross $1.55 trillion in 2027. This phenomenal growth has led to a 157% jump in the PHLX Semiconductor Sector index over the past year, as of this writing.
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That's why now is a good time to take a closer look at key semiconductor stocks that are capitalizing on the industry's secular growth and appear capable of delivering healthy gains for investors.
Image source: Getty Images.
Taiwan Semiconductor Manufacturing: The world's largest foundry company
Taiwan Semiconductor Manufacturing(NYSE: TSM), popularly known as TSMC, is the world's largest semiconductor foundry that manufactures chips designed by fabless chipmakers. The Taiwan-based company doesn't design its own chips. Instead, it is involved in the mass production of chips for companies such as Apple, Nvidia, AMD, Qualcomm, Sony, and others, who don't have their own chipmaking facilities.
TSMC's pure-play foundry business model puts it right in the middle of the global semiconductor boom. The company's revenue has increased by 30% year over year in the first five months of 2026. TSMC has managed to build a solid customer base due to its advanced process nodes, such as 5-nanometer (nm), 3nm, and 2nm, which are more powerful and energy efficient compared to mature nodes.
This explains why major AI chip designers are designing chips based on TSMC's advanced process nodes. For instance, Nvidia's upcoming Vera Rubin processors utilize TSMC's 3nm process node. The robust demand for these advanced nodes explains why TSMC's foundry market share increased to 73% in Q1 this year from 68% in the same period last year, according to Counterpoint Research.
So, as the demand for semiconductors increases, TSMC should be able to maintain its healthy growth rate. Not surprisingly, analysts expect the company's top line to grow at over 20% going forward.
Data by YCharts
TSMC stock has soared by 111% over the past year. However, further upside cannot be ruled out over the next five years, given the company's robust earnings growth potential, suggesting it isn't too late to buy this chip titan.
ASML: The most important semiconductor equipment supplier
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TSMC produces the advanced chips using extreme ultraviolet lithography (EUV) machines manufactured by Dutch chip giant ASML Holding(NASDAQ: ASML). These machines use extreme ultraviolet light to etch billions of transistors on silicon wafers, and ASML is the only company that manufactures them.
So, it is easy to see why ASML's most advanced machines are in terrific demand. The company lifted its 2026 revenue guidance in April this year to a range of 36 billion euros to 40 billion euros, up from the prior range of 34 billion euros to 39 billion euros. Don't be surprised to see ASML raising its guidance as the year progresses, driven by the demand for its EUV machines.
The company is forecasting a 25% increase in shipments of its low-NA EUV machines this year to 60 units, followed by a bigger jump of 33% in 2027 to 80 units. Importantly, ASML notes that it is working closely with its supplier to boost the production of its EUV machines to meet the solid customer demand.
That's probably why analysts are expecting an acceleration in ASML's growth in 2027, following an estimated top-line increase of 20% this year.
Data by YCharts
There is a good chance of ASML's growth outpacing Wall Street's expectations in the future, driven by the shortage of components in the memory and optical networking markets. Also, AI chip designers such as Nvidia are seeing strong order inflows, while AMD and Broadcom are also experiencing phenomenal growth.
So, the mission-critical role that ASML plays in the semiconductor industry points to strong demand for its machines beyond 2027, which could pave the way for further upside in its stock price following terrific gains of 148% over the past year.
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Harsh Chauhan has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ASML, Advanced Micro Devices, Apple, Broadcom, Nvidia, Qualcomm, and Taiwan Semiconductor Manufacturing. The Motley Fool recommends Gartner. The Motley Fool has a disclosure policy.
Source: “AOL Money”
