Semiconductors are the silicon backbone of the digital revolution. The amount of data we ingest is also increasing exponentially, leading to elevated demand for chips with more processing power. This secular trend bodes well for the industry, which has posted a six-month gain of 37% and beat the S&P 500 by 23.3 percentage points.
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. Keeping that in mind, here is one semiconductor stock boasting a durable advantage and two we’re passing on.
Two Semiconductor Stocks to Sell:
Semtech (SMTC)
Market Cap: $6.21 billion
A public company since the late 1960s, Semtech (NASDAQ: SMTC) is a provider of analog and mixed-signal semiconductors used for Internet of Things systems and cloud connectivity.
Why Should You Sell SMTC?
- Historical operating margin losses have deepened over the last five years as it prioritized growth over profits
- Weak free cash flow margin of 9.3% has deteriorated further over the last five years as its investments increased
- Push for growth has led to negative returns on capital, signaling value destruction, and its shrinking returns suggest its past profit sources are losing steam
At $67.38 per share, Semtech trades at 35.9x forward P/E. To fully understand why you should be careful with SMTC, check out our full research report (it’s free for active Edge members).
Magnachip (MX)
Market Cap: $92.11 million
With its technology found in common consumer electronics such as TVs and smartphones, Magnachip Semiconductor (NYSE: MX) is a provider of analog and mixed-signal semiconductors.
Why Should You Dump MX?
- Sales tumbled by 17.2% annually over the last five years, showing market trends are working against its favor during this cycle
- Earnings per share have contracted by 16.8% annually over the last five years, a headwind for returns as stock prices often echo long-term EPS performance
- Cash burn has widened over the last five years, making us question whether it can reliably generate shareholder value
Magnachip is trading at $2.57 per share, or 0.5x forward price-to-sales. Check out our free in-depth research report to learn more about why MX doesn’t pass our bar.
One Semiconductor Stock to Buy:
Monolithic Power Systems (MPWR)
Market Cap: $43.7 billion
Founded in 1997 by its longtime CEO Michael Hsing, Monolithic Power Systems (NASDAQ: MPWR) is an analog and mixed signal chipmaker that specializes in power management chips meant to minimize total energy consumption.
Why Is MPWR a Top Pick?
- Market share has increased this cycle as its 27.9% annual revenue growth over the last five years was exceptional
- Earnings per share grew by 29.1% annually over the last five years and trumped its peers
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
Monolithic Power Systems’s stock price of $921.50 implies a valuation ratio of 48x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.
High-Quality Stocks for All Market Conditions
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in 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 244% over the last five years (as of June 30, 2025).
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 Kadant (+351% 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.
