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 57.9% and beat the S&P 500 by 54.3 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. Taking that into account, here are three semiconductor stocks we’re swiping left on.
Qorvo (QRVO)
Market Cap: $7.40 billion
Formed by the merger of TriQuint and RF Micro Devices, Qorvo (NASDAQ: QRVO) is a designer and manufacturer of RF chips used in almost all smartphones globally, along with a variety of chips used in networking equipment and infrastructure.
Why Should You Sell QRVO?
- Sales were flat over the last five years, indicating it’s failed to expand this cycle
- Sales are projected to tank by 10% over the next 12 months as demand evaporates
- Efficiency has decreased over the last five years as its operating margin fell by 16.5 percentage points
Qorvo’s stock price of $80.14 implies a valuation ratio of 13x forward P/E. Dive into our free research report to see why there are better opportunities than QRVO.
Texas Instruments (TXN)
Market Cap: $195.7 billion
Headquartered in Dallas, Texas since the 1950s, Texas Instruments (NASDAQ: TXN) is the world’s largest producer of analog semiconductors.
Why Do We Think Twice About TXN?
- Sales were flat over the last two years, indicating it’s failed to expand this cycle
- Costs have risen faster than its revenue over the last five years, causing its operating margin to decline by 14.8 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 19.6 percentage points
Texas Instruments is trading at $216.02 per share, or 32.7x forward P/E. To fully understand why you should be careful with TXN, check out our full research report (it’s free).
Lattice Semiconductor (LSCC)
Market Cap: $14.55 billion
A global leader in its category, Lattice Semiconductor (NASDAQ: LSCC) is a semiconductor designer specializing in customer-programmable chips that enhance CPU performance for intensive tasks such as machine learning.
Why Does LSCC Give Us Pause?
- Sales tumbled by 15.7% annually over the last two years, showing market trends are working against its favor during this cycle
- Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 17.4 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.3 percentage points
At $107.75 per share, Lattice Semiconductor trades at 68.3x forward P/E. Check out our free in-depth research report to learn more about why LSCC doesn’t pass our bar.
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