Semiconductors are the picks and shovels of modern technology. Compute-intensive AI workloads are also priming them for the next wave of secular growth, so it’s no wonder the industry has outperformed the market over the past six months, delivering returns of 112% compared to 8.4% for 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 boasting a durable advantage and two we’re swiping left on.
Two Semiconductor Stocks to Sell:
Lattice Semiconductor (LSCC)
Market Cap: $19.57 billion
A global leader in its category, Lattice Semiconductor (NASDAQ: LSCC) is a semiconductor designer specializing in customer-programmable chips that enhance CPU performance for intensive tasks such as machine learning.
Why Does LSCC Fall Short?
- Annual sales declines of 9% 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 16.2 percentage points
- 4.7 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Lattice Semiconductor’s stock price of $146.17 implies a valuation ratio of 73.8x forward P/E. Read our free research report to see why you should think twice about including LSCC in your portfolio.
Kulicke and Soffa (KLIC)
Market Cap: $5.85 billion
Headquartered in Singapore, Kulicke & Soffa (NASDAQ: KLIC) is a provider of production equipment and tools used to assemble semiconductor devices
Why Are We Hesitant About KLIC?
- Sales tumbled by 3.9% annually over the last five years, showing market trends are working against it during this cycle
- Operating profits fell over the last five years as its sales dropped and it struggled to adjust its fixed costs
- 20.2 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $114 per share, Kulicke and Soffa trades at 27.4x forward P/E. If you’re considering KLIC for your portfolio, see our FREE research report to learn more.
One Semiconductor Stock to Watch:
Marvell Technology (MRVL)
Market Cap: $245.6 billion
Moving away from a low margin storage device management chips in one of the biggest semiconductor business model pivots of the past decade, Marvell Technology (NASDAQ: MRVL) is a fabless designer of special purpose data processing and networking chips used by data centers, communications carriers, enterprises, and autos.
Why Do We Like MRVL?
- Annual revenue growth of 22.9% over the last five years was superb and indicates its market share increased during this cycle
- Projected revenue growth of 45.4% for the next 12 months is above its two-year trend, pointing to accelerating demand
- Operating margin improvement of 19.8 percentage points over the last five years demonstrates its ability to scale efficiently
Marvell Technology is trading at $281.28 per share, or 61.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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