Semiconductors are the core infrastructure powering the Information Age. Still, they’re subject to swings in the broader economy because customers often stockpile chips ahead of demand. Some investors seem to be debating where we are in the cycle as the industry’s six-month return of 8.5% has fallen short of the S&P 500’s 16.9% rise.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. Here are three semiconductor stocks boasting durable advantages.

KLA Corporation (KLAC)

Market Cap: $101.2 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 Good Business?

1. Market share has increased this cycle as its 15.5% annual revenue growth over the last five years was exceptional
2. Highly efficient business model is illustrated by its impressive 34.9% operating margin, and its profits increased over the last five years as it scaled
3. Robust free cash flow margin of 31.8% gives it many options for capital deployment, and its recently improved profitability means it has even more resources to invest or distribute

At $764.60 per share, KLA Corporation trades at 25.4x forward price-to-earnings. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.

Photronics (PLAB)

Market Cap: $1.45 billion

Sporting a global footprint of facilities, Photronics (NASDAQ: PLAB) is a manufacturer of photomasks, templates used to transfer patterns onto semiconductor wafers.

Why Are We Positive On PLAB?

1. Operating margin expanded by 15.1 percentage points over the last five years as it scaled and became more efficient
2. Incremental sales over the last five years have been more profitable as its earnings per share increased by 32.6% annually, topping its revenue gains
3. Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures, and its returns are climbing as it finds even more attractive growth opportunities

Photronics is trading at $23.65 per share, or 10.4x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.

Lam Research (LRCX)

Market Cap: $106.3 billion

Founded in 1980 by David Lam, the man who pioneered semiconductor etching technology, Lam Research (NASDAQ: LRCX) is one of the leading providers of wafer fabrication equipment used to make semiconductors.

Why Do We Like LRCX?

1. Healthy operating margin of 28.4% shows it’s a well-run company with efficient processes
2. Strong free cash flow margin of 29.2% enables it to reinvest or return capital consistently, and its rising cash conversion increases its margin of safety
3. Stellar returns on capital showcase management’s ability to surface highly profitable business ventures

Lam Research’s stock price of $82.83 implies a valuation ratio of 22.6x forward price-to-earnings. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free.

Stocks We Like Even More

The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.

Take advantage of the rebound by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.