Semiconductors are the silicon backbone of the digital revolution. The way we live and work is also changing with AI, which is creating secular demand for more powerful chips. This theme has led to decent stock price performance as the industry’s six-month gain of 7.3% has nearly mirrored the S&P 500.
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. On that note, here is one semiconductor stock poised to generate sustainable market-beating returns and two we’re swiping left on.
Two Semiconductor Stocks to Sell:
Analog Devices (ADI)
Market Cap: $121.5 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?
- Annual sales declines of 10.1% for the past two years show its products and services struggled to connect with the market during this cycle
- Efficiency has decreased over the last five years as its operating margin fell by 7 percentage points
- Underwhelming 6.5% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its falling returns suggest its earlier profit pools are drying up
Analog Devices is trading at $248.60 per share, or 29.2x forward P/E. Dive into our free research report to see why there are better opportunities than ADI.
Microchip Technology (MCHP)
Market Cap: $35.67 billion
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Should You Sell MCHP?
- Sales tumbled by 4.2% annually over the last five years, showing market trends are working against its favor during this cycle
- Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs
- Free cash flow margin dropped by 15.8 percentage points over the last five years, implying the company became more capital intensive as competition picked up
At $66.32 per share, Microchip Technology trades at 38.2x forward P/E. Read our free research report to see why you should think twice about including MCHP in your portfolio.
One Semiconductor Stock to Buy:
KLA Corporation (KLAC)
Market Cap: $115.1 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 15.9% over the last five years was superb and indicates its market share increased during this cycle
- Excellent operating margin of 37% highlights the efficiency of its business model, and its profits increased over the last five years as it scaled
- Strong free cash flow margin of 30.9% enables it to reinvest or return capital consistently, and its improved cash conversion implies it’s becoming a less capital-intensive business
KLA Corporation’s stock price of $874.99 implies a valuation ratio of 26.4x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
Donald Trump’s April 2025 "Liberation Day" tariffs sent markets into a tailspin, but stocks have since rebounded strongly, proving that knee-jerk reactions often create the best buying opportunities.
The smart money is already positioning for the next leg up. Don’t miss out on the recovery - check 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 183% over the last five years (as of March 31st 2025).
Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% 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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