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As the artificial intelligence wave sweeps through global capital markets, investors are confronting a core question: in the AI supply chain, should they position themselves in upstream equipment manufacturers, or place their bets on chip design leaders? The former camp, represented by ASML Holding and Applied Materials, provides the indispensable manufacturing equipment for AI chip production. The latter, led by Nvidia and Broadcom, commands the core architectural design rights for AI processors.
Looking at stock price performance, the relative positioning of these two groups is undergoing an intriguing rotation. Over the past year, benefiting from the explosive expansion of capital expenditures by global tech giants, equipment makers have seen their share prices far outpace those of chip designers. However, extending the horizon to three years, the designers—with their formidable profitability and market dominance—are emerging as the clear long-term winners in this race.
ASML Holding dominates the advanced nodes space, holding a near-monopoly on the Extreme Ultraviolet (EUV) lithography systems required to manufacture the world’s most complex AI chips. Applied Materials provides essential materials, engineering, and equipment for high-bandwidth memory (HBM) and transistors. Over the past 12 months, ASML’s stock has risen 150%, while Applied Materials has surged 200%, both directly benefiting from the accelerating pace of AI spending.
Their financial performance is equally impressive. ASML posted second-quarter revenue of $10.8 billion, up 21% year-over-year, with diluted non-GAAP earnings of $8.81 per share, a 28% increase. Applied Materials reported second-quarter revenue of $7.9 billion, up 11%, with earnings per share of $2.86, a 20% gain. With tech company capital expenditures projected to jump from approximately $705 billion in 2026 to over $1 trillion in 2027, the critical supporting role of equipment makers will only grow more entrenched.
Nvidia stands as the undisputed leader in graphics processing unit (GPU) design, with its processors commanding an 86% share of the data center GPU market. Broadcom, meanwhile, has carved out a unique position in custom application-specific integrated circuits (ASICs), with Alphabet and OpenAI among its core customers. Although chip designers’ share price gains have lagged behind those of equipment makers over the past year, Nvidia and Broadcom are the undeniable winners when viewed over a three-year horizon.
The gap in profitability is even more telling. Nvidia reported first-quarter revenue of $81.6 billion for fiscal 2027 (ended April 26), up 85% year-over-year, with earnings per share of $1.87, a staggering 140% increase. Broadcom posted second-quarter revenue of $21.2 billion for fiscal 2026 (ended May 3), up 48%, with earnings per share of $2.44, a 54% jump. The two companies boast gross margins of 75% and 77%, respectively – far exceeding the 50%-54% range of their equipment-maker counterparts.
The most significant advantage chip designers hold over equipment manufacturers lies in their pricing power. As demand for AI chips surges, Nvidia and Broadcom have the ability to continually raise prices, sustaining exceptionally high profit barriers. Equipment manufacturers, by contrast, face constraints from high production and capital costs, making it considerably more difficult to expand profit margins.
This dynamic implies that should AI spending growth decelerate, chip designers – armed with strong pricing power and superior margins – are better positioned to weather cyclical downturns than their equipment-making peers. Their high-margin business models not only insulate them from demand fluctuations but also provide ample financial firepower to sustain R&D investment and reinforce their competitive advantages.
In the near term, equipment makers enjoy stronger earnings visibility, directly benefiting from the capital expenditure wave driving AI capacity expansion. However, from a long-term perspective, chip designers – with their unassailable market share, formidable pricing power, and exceptionally high profit moats – possess deeper competitive defenses in the AI marathon. For investors seeking long-term compound returns, the chip design leaders represented by Nvidia and Broadcom may well be the more compelling bet in the AI race.
