My Three Favorite Chip Stocks for 2025 Outperformed the Market. Here’s Why They Can Do It Again in 2026.

Nvidia and Chip Industry Insights

Nvidia is at the forefront of designing advanced chips tailored for GPUs.

Taiwan Semiconductor handles the manufacturing of Nvidia’s designs.

ASML supplies specialized machinery essential for chip production.

As we look towards 2025, I think those keeping an eye on Nvidia (NASDAQ:NVDA), Taiwan Semiconductor Manufacturing (NYSE:TSM), and ASML Holding (NASDAQ:ASML) could see significant benefits. The “worst” performer was Nvidia, which still saw a commendable rise of 39%. In comparison, both Taiwan Semiconductor and ASML had even better performances, each increasing by 54%. So, whether you’re following my suggestions or not, it’s crucial for investors to ponder the value of keeping these stocks for 2026 or possibly adding more. Personally, I think I’d lean towards owning two of those stocks, both of which still appear promising.

Each of these companies plays distinct roles in the chip ecosystem. Nvidia focuses on chip design specifically for graphics processing units (GPUs). These GPUs are now highly sought after for generative AI tasks, and the demand is something we haven’t really seen before. That said, Nvidia itself doesn’t manufacture these chips; that’s where Taiwan Semiconductor comes into the picture. They run chip fabrication plants that take in designs from clients and create the chips. This arrangement offers Taiwan Semiconductor a neutral vantage point—they’re not in direct competition with Nvidia, just providing valuable production capabilities. It’s really noteworthy that many companies, like Nvidia, prefer not to manufacture their own chips due to the enormous investments in equipment and expertise that high-end chip production demands, particularly the complex machinery produced by ASML.

ASML specializes in extreme ultraviolet lithography machines, which are crucial for placing intricate electrical patterns on chips. They are unique in the world for this particular technology, which guarantees their growth as long as the demand for chips continues.

Looking ahead to 2026, which of these three companies will be the best investment? Analysts on Wall Street predict Nvidia will grow by 51%, Taiwan Semiconductor by 31%, and ASML by 15%. These forecasts show some disappointment. Interestingly, ASML’s forward P/E ratio is 34x, while Nvidia and Taiwan Semiconductor are at 25x and 21x respectively. Personally, I believe that investing in Taiwan Semiconductor and Nvidia seems wiser at this point—ASML feels overpriced given its slower growth rate. Sure, ASML may still yield strong results, but I’m feeling more confident about Nvidia and Taiwan Semiconductor as we head into 2026.