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 24.2%. This drop was noticeably worse than the S&P 500’s 5.7% fall.

Despite the lackluster result, a few diamonds in the rough can produce earnings growth no matter what, and we started StockStory to help you find them. With that said, here is one resilient semiconductor stock at the top of our wish list and two we’re steering clear of.

Two Semiconductor Stocks to Sell:

Lattice Semiconductor (LSCC)

Market Cap: $6.76 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 Are We Wary of LSCC?

1. Sales tumbled by 12.2% annually over the last two years, showing market trends are working against its favor during this cycle
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 2.9%
3. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 6.1 percentage points

Lattice Semiconductor’s stock price of $48.78 implies a valuation ratio of 45.5x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than LSCC.

Teradyne (TER)

Market Cap: $12.43 billion

Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ:TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.

Why Is TER Not Exciting?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 5.5% annually over the last two years
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 8.7 percentage points
3. Free cash flow margin shrank by 5.1 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Teradyne is trading at $77.22 per share, or 18.4x forward price-to-earnings. Read our free research report to see why you should think twice about including TER in your portfolio, it’s free.

One Semiconductor Stock to Buy:

Broadcom (AVGO)

Market Cap: $884.7 billion

Originally the semiconductor division of Hewlett Packard, Broadcom (NASDAQ:AVGO) is a semiconductor conglomerate spanning wireless communications, networking, and data storage as well as infrastructure software focused on mainframes and cybersecurity.

Why Are We Bullish on AVGO?

1. Annual revenue growth of 25.9% over the last two years was superb and indicates its market share increased during this cycle
2. Offerings are difficult to replicate at scale and lead to a best-in-class gross margin of 75.4%
3. Robust free cash flow margin of 41.9% gives it many options for capital deployment

At $186.48 per share, Broadcom trades at 28.3x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio 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 Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.