Semiconductors are the core infrastructure powering the Information Age. 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 62.7% compared to 21% 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. Taking that into account, here is one semiconductor stock boasting a durable advantage and two best left ignored.
Two Semiconductor Stocks to Sell:
FormFactor (FORM)
Market Cap: $4.24 billion
With customers across the foundry and fabless markets, FormFactor (NASDAQ: FORM) is a US-based provider of test and measurement technologies for semiconductors.
Why Are We Wary of FORM?
- 2.4% annual revenue growth over the last five years was slower than its semiconductor peers
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 5.5% annually while its revenue grew
- Investment activity picked up over the last five years, pressuring its weak free cash flow margin of 3.7%
At $54.50 per share, FormFactor trades at 38.7x forward P/E. Check out our free in-depth research report to learn more about why FORM doesn’t pass our bar.
Kulicke and Soffa (KLIC)
Market Cap: $2.08 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?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 10.8% annually over the last two years
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 23.4 percentage points
- Earnings per share have contracted by 20.3% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
Kulicke and Soffa’s stock price of $38.95 implies a valuation ratio of 36.6x forward P/E. Read our free research report to see why you should think twice about including KLIC in your portfolio.
One Semiconductor Stock to Buy:
Lam Research (LRCX)
Market Cap: $197.8 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 Is LRCX a Top Pick?
- Annual revenue growth of 11.2% over the last two years was superb and indicates its market share increased during this cycle
- Free cash flow margin jumped by 9.4 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
- Industry-leading 64.3% return on capital demonstrates management’s skill in finding high-return investments
Lam Research is trading at $157.50 per share, or 32.2x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .
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 6 Stocks for this week. 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 Tecnoglass (+1,754% 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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