Semiconductors are the picks and shovels of modern technology. 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 116% has outpaced the S&P 500’s 9.8% 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 that may face trouble.
Two Semiconductor Stocks to Sell:
Sensata Technologies (ST)
Market Cap: $7.35 billion
Originally a temperature sensor control maker and a subsidiary of Texas Instruments for 60 years, Sensata Technology Holdings (NYSE: ST) is a leading supplier of analog sensors used in industrial and transportation applications, best known for its dominant position in the tire pressure monitoring systems in cars.
Why Is ST Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 4.2% annually over the last two years
- Projected sales growth of 4.3% for the next 12 months suggests sluggish demand
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 29.2%
At $50.51 per share, Sensata Technologies trades at 13.3x forward P/E. Read our free research report to see why you should think twice about including ST in your portfolio.
FormFactor (FORM)
Market Cap: $10.37 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 Is FORM Not Exciting?
- Annual revenue growth of 3.1% over the last five years was below our standards for the semiconductor sector
- Gross margin of 41.4% reflects its high production costs
- Investment activity picked up over the last five years, pressuring its weak free cash flow margin of 6.3%
FormFactor is trading at $133.46 per share, or 55.1x forward P/E. Dive into our free research report to see why there are better opportunities than FORM.
One Semiconductor Stock to Watch:
AMD (AMD)
Market Cap: $808 billion
Founded in 1969 by a group of former Fairchild semiconductor executives led by Jerry Sanders, Advanced Micro Devices (NASDAQ: AMD) is one of the leading designers of computer processors and graphics chips used in PCs and data centers.
Why Are We Fans of AMD?
- Annual revenue growth of 26.8% over the past five years was outstanding, reflecting market share gains this cycle
- Demand for the next 12 months is expected to accelerate above its two-year trend as Wall Street forecasts robust revenue growth of 47.5%
- Earnings per share grew by 23% annually over the last five years and easily exceeded the peer group average
AMD’s stock price of $490.50 implies a valuation ratio of 57.9x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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