Semiconductors are the silicon backbone of the digital revolution. Still, they’re subject to swings in the broader economy because customers often stockpile chips ahead of demand, and investors seem to believe that inventory levels are correcting - over the past six months, the industry has shed 21.3%. This drawdown was significantly worse than the S&P 500’s 4% loss.

The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. 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:

IPG Photonics (IPGP)

Market Cap: $2.77 billion

Both a designer and manufacturer of its products, IPG Photonics (NASDAQ: IPGP) is a provider of high-performance fiber lasers used for cutting, welding, and processing raw materials.

Why Do We Steer Clear of IPGP?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.8% annually over the last five years
2. Overall productivity fell over the last five years as its plummeting sales were accompanied by a decline in its operating margin
3. Sales were less profitable over the last five years as its earnings per share fell by 23.6% annually, worse than its revenue declines

At $63.42 per share, IPG Photonics trades at 32.9x forward price-to-earnings. To fully understand why you should be careful with IPGP, check out our full research report (it’s free).

Kulicke and Soffa (KLIC)

Market Cap: $1.77 billion

Headquartered in Singapore, Kulicke & Soffa (NASDAQ: KLIC) is a provider of production equipment and tools used to assemble semiconductor devices

Why Should You Sell KLIC?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 24.2% annually over the last two years
2. Incremental sales over the last five years were much less profitable as its earnings per share fell by 28.3% annually while its revenue grew
3. Free cash flow margin shrank by 10.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Kulicke and Soffa is trading at $33.06 per share, or 17.1x forward price-to-earnings. Read our free research report to see why you should think twice about including KLIC in your portfolio.

One Semiconductor Stock to Watch:

AMD (AMD)

Market Cap: $167.3 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 Does AMD Stand Out?

1. Impressive 30.8% annual revenue growth over the last five years indicates it’s winning market share this cycle
2. Market share is on track to rise over the next 12 months as its 23% projected revenue growth implies demand will accelerate from its two-year trend
3. Earnings growth has massively outpaced its peers over the last five years as its EPS has compounded at 39.7% annually

AMD’s stock price of $100.50 implies a valuation ratio of 21.2x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like United Rentals (+322% five-year return). Find your next big winner with StockStory today for free.