Semiconductors are the core infrastructure powering the Information Age. The amount of data we ingest is also increasing exponentially, leading to elevated demand for chips with more processing power. This secular trend bodes well for the industry, which has posted a six-month gain of 46.4% and beat the S&P 500 by 31.1 percentage points.
Nevertheless, a cautious approach is imperative because Moore’s Law (a principle stating that computer productivity doubles every two years) will eventually make even the most impactful technologies today obsolete. With that said, here is one semiconductor stock poised to generate sustainable market-beating returns and two we’re passing on.
Two Semiconductor Stocks to Sell:
Power Integrations (POWI)
Market Cap: $2.02 billion
A leading supplier of parts for electronics such as home appliances, Power Integrations (NASDAQ: POWI) is a semiconductor designer and developer specializing in products used for high-voltage power conversion.
Why Should You Dump POWI?
- Flat sales over the last five years suggest it must find different ways to grow during this cycle
- Estimated sales growth of 1.8% for the next 12 months is soft and implies weaker demand
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 22.1 percentage points
Power Integrations is trading at $36.44 per share, or 31.8x forward P/E. Read our free research report to see why you should think twice about including POWI in your portfolio.
Entegris (ENTG)
Market Cap: $13.36 billion
With fabs representing the company’s largest customer type, Entegris (NASDAQ: ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.
Why Do We Think ENTG Will Underperform?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 6.1% annually over the last two years
- Projected sales growth of 2.6% for the next 12 months suggests sluggish demand
- Weak free cash flow margin of 9.3% has deteriorated further over the last five years as its investments increased
Entegris’s stock price of $88.01 implies a valuation ratio of 29.5x forward P/E. To fully understand why you should be careful with ENTG, check out our full research report (it’s free for active Edge members).
One Semiconductor Stock to Buy:
KLA Corporation (KLAC)
Market Cap: $158.7 billion
Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ: KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.
Why Is KLAC a Top Pick?
- Annual revenue growth of 16.1% over the last five years was superb and indicates its market share increased during this cycle
- Superior product capabilities and pricing power are reflected in its best-in-class gross margin of 60.6%
- Robust free cash flow margin of 30.8% gives it many options for capital deployment
At $1,209 per share, KLA Corporation trades at 32.7x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.
Stocks We Like Even More
The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today for free. Find your next big winner with StockStory today. Find your next big winner with StockStory today
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