Semiconductors are the silicon backbone of the digital revolution. Demand for chips is variable though, meaning that corporate inventory levels and sentiment can significantly impact the industry. Uncertainty surrounding these factors has hurt semiconductor stocks over the past six months as they have pulled back by 17%. This drawdown was noticeably worse than the S&P 500’s 1.7% fall.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Keeping that in mind, here is one semiconductor stock poised to generate sustainable market-beating returns and two we’re steering clear of.
Two Semiconductor Stocks to Sell:
Analog Devices (ADI)
Market Cap: $98.5 billion
Founded by two MIT graduates, Ray Stata and Matthew Lorber in 1965, Analog Devices (NASDAQ: ADI) is one of the largest providers of high performance analog integrated circuits used mainly in industrial end markets, along with communications, autos, and consumer devices.
Why Does ADI Give Us Pause?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 13.8% annually over the last two years
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 8.1 percentage points
- Low returns on capital reflect management’s struggle to allocate funds effectively, and its falling returns suggest its earlier profit pools are drying up
Analog Devices’s stock price of $198.10 implies a valuation ratio of 26.1x forward P/E. Read our free research report to see why you should think twice about including ADI in your portfolio.
Amtech (ASYS)
Market Cap: $51.44 million
Focusing on the silicon carbide and power semiconductor sectors, Amtech Systems (NASDAQ: ASYS) produces the machinery and related chemicals needed for manufacturing semiconductors.
Why Do We Pass on ASYS?
- Muted 4.1% annual revenue growth over the last five years shows its demand lagged behind its semiconductor peers
- Historical operating losses point to an inefficient cost structure
- Negative returns on capital show that some of its growth strategies have backfired, and its falling returns suggest its earlier profit pools are drying up
Amtech is trading at $3.53 per share, or 7.3x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why ASYS doesn’t pass our bar.
One Semiconductor Stock to Watch:
Applied Materials (AMAT)
Market Cap: $126 billion
Founded in 1967 as the first company to develop tools for other businesses in the semiconductor industry, Applied Materials (NASDAQ: AMAT) is the largest provider of semiconductor wafer fabrication equipment.
Why Does AMAT Stand Out?
- Market share has increased this cycle as its 13% annual revenue growth over the last five years was exceptional
- Healthy operating margin of 29.1% shows it’s a well-run company with efficient processes, and its rise over the last five years was fueled by some leverage on its fixed costs
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
At $155.10 per share, Applied Materials trades at 16.3x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
Stocks That Overcame Trump’s 2018 Tariffs
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. 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 United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.
