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 68.1% compared to 4.8% 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 poised to generate sustainable market-beating returns and two we’re passing on.
Two Semiconductor Stocks to Sell:
Skyworks Solutions (SWKS)
Market Cap: $9.29 billion
Result of a merger of Alpha Industries and the wireless communications division of Conexant, Skyworks Solutions (NASDAQ: SWKS) is a designer and manufacturer of chips used in smartphones, autos, and industrial applications to amplify, filter, and process wireless signals.
Why Do We Think SWKS Will Underperform?
- Annual sales declines of 6.6% for the past two years show its products and services struggled to connect with the market during this cycle
- Projected sales decline of 7.9% over the next 12 months indicates demand will continue deteriorating
- Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 18.7 percentage points
At $61.92 per share, Skyworks Solutions trades at 13.3x forward P/E. Check out our free in-depth research report to learn more about why SWKS doesn’t pass our bar.
Himax (HIMX)
Market Cap: $2.01 billion
Taiwan-based Himax Technologies (NASDAQ: HIMX) is a leading manufacturer of display driver chips and timing controllers used in TVs, laptops, and mobile phones.
Why Are We Out on HIMX?
- Sales tumbled by 1.3% annually over the last five years, showing market trends are working against its favor during this cycle
- Inability to adjust its cost structure while its revenue declined over the last five years led to a 29.9 percentage point drop in the company’s operating margin
- High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate
Himax is trading at $11.58 per share, or 48.5x forward P/E. Read our free research report to see why you should think twice about including HIMX in your portfolio.
One Semiconductor Stock to Watch:
Applied Materials (AMAT)
Market Cap: $320.2 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?
- Healthy operating margin of 28.7% shows it’s a well-run company with efficient processes
- AMAT is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
Applied Materials’s stock price of $408.35 implies a valuation ratio of 32.6x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
Stocks We Like Even More
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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 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.
