Semiconductors are the core infrastructure powering the Information Age. The way we live and work is also changing with AI, which is creating secular demand for more powerful chips. As a result, the industry has seen solid stock price performance over the last six months as its gain of 66% has outpaced the S&P 500’s 8.6% return.
Regardless of these results, investors must exercise caution as the rapid pace of innovation can easily turn today’s winners into tomorrow’s losers. Keeping that in mind, here is one semiconductor stock boasting a durable advantage and two we’re steering clear of.
Two Semiconductor Stocks to Sell:
NXP Semiconductors (NXPI)
Market Cap: $57.61 billion
Spun off from Dutch electronics giant Philips in 2006, NXP Semiconductors (NASDAQ: NXPI) is a designer and manufacturer of chips used in autos, industrial manufacturing, mobile devices, and communications infrastructure.
Why Are We Wary of NXPI?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 3.9% annually over the last two years
- Projected sales growth of 10.6% for the next 12 months suggests sluggish demand
NXP Semiconductors is trading at $228.80 per share, or 16.1x forward P/E. Read our free research report to see why you should think twice about including NXPI in your portfolio.
Kulicke and Soffa (KLIC)
Market Cap: $3.82 billion
Headquartered in Singapore, Kulicke & Soffa (NASDAQ: KLIC) is a provider of production equipment and tools used to assemble semiconductor devices
Why Is KLIC Risky?
- Annual sales declines of 1.6% for the past five years show its products and services struggled to connect with the market during this cycle
- Operating margin declined by 40.3 percentage points over the last five years as its sales cratered
- Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 29.8% annually, worse than its revenue
Kulicke and Soffa’s stock price of $72.79 implies a valuation ratio of 24.2x forward P/E. If you’re considering KLIC for your portfolio, see our FREE research report to learn more.
One Semiconductor Stock to Watch:
Western Digital (WDC)
Market Cap: $96.96 billion
Founded in 1970 by a Motorola employee, Western Digital (NASDAQ: WDC) is a leading producer of hard disk drives, SSDs and flash memory.
Why Does WDC Stand Out?
- Projected revenue growth of 31.7% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Operating margin expansion of 16.1 percentage points over the last five years shows the company optimized its expenses
- Free cash flow margin increased by 14.7 percentage points over the last five years, giving the company more capital to invest or return to shareholders
At $285.35 per share, Western Digital trades at 25.1x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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