3 Semiconductor Stocks We Find Risky

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 125% has outpaced the S&P 500’s 8.9% 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 are three semiconductor stocks we’re steering clear of.

NXP Semiconductors (NXPI)

Market Cap: $76.39 billion

Spun off from Dutch electronics giant Philips in 2006, NXP Semiconductors (NASDAQ: NXPI) is a designer and manufacturer of chips used in autos, industrial manufacturing, mobile devices, and communications infrastructure.

Why Does NXPI Give Us Pause?

1. Sales tumbled by 2.5% annually over the last two years, showing market trends are working against it during this cycle
2. Estimated sales growth of 14.8% for the next 12 months is soft and implies weaker demand

At $314.28 per share, NXP Semiconductors trades at 19.2x forward P/E. To fully understand why you should be careful with NXPI, check out our full research report (it’s free).

Qorvo (QRVO)

Market Cap: $8.60 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 Is QRVO Risky?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.7% annually over the last five years
2. Forecasted revenue decline of 5.7% for the upcoming 12 months implies demand will fall even further
3. Inability to adjust its cost structure while its revenue declined over the last five years led to a 15.2 percentage point drop in the company’s operating margin

Qorvo is trading at $98.83 per share, or 13.7x forward P/E. If you’re considering QRVO for your portfolio, see our FREE research report to learn more.

Qualcomm (QCOM)

Market Cap: $213.9 billion

Having been at the forefront of developing the standards for cellular connectivity for over four decades, Qualcomm (NASDAQ:QCOM) is a leading innovator and a fabless manufacturer of wireless technology chips used in smartphones, autos and internet of things appliances.

Why Does QCOM Worry Us?

1. Forecasted revenue decline of 8.8% for the upcoming 12 months implies demand will fall off a cliff
2. Day-to-day expenses have swelled relative to revenue over the last five years as its operating margin fell by 7.2 percentage points

Qualcomm’s stock price of $226.50 implies a valuation ratio of 21.8x forward P/E. Read our free research report to see why you should think twice about including QCOM in your portfolio.

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