Semiconductors are the core infrastructure powering the Information Age. Compute-intensive AI workloads are also priming them for the next wave of secular growth, so it’s no wonder the industry has outperformed the market over the past six months, delivering returns of 78.4% compared to 26.5% for the S&P 500.

Regardless of these results, investors must exercise caution as the rapid pace of innovation can easily turn today’s winners into tomorrow’s losers. Taking that into account, here are two resilient semiconductor stocks at the top of our wish list and one that may face trouble.

One Semiconductor Stock to Sell:

Penguin Solutions (PENG)

Market Cap: $1.19 billion

Based in the US, Penguin Solutions (NASDAQ: PENG) is a diversified semiconductor company offering memory, digital, and LED products.

Why Is PENG Risky?

1. Muted 4% annual revenue growth over the last five years shows its demand lagged behind its semiconductor peers
2. High input costs result in an inferior gross margin of 29.1% that must be offset through higher volumes
3. ROIC of 4.8% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging

At $22.30 per share, Penguin Solutions trades at 10.9x forward P/E. Dive into our free research report to see why there are better opportunities than PENG.

Two Semiconductor Stocks to Watch:

MACOM (MTSI)

Market Cap: $10.19 billion

Founded in the 1950s as Microwave Associates, a communications supplier to the US Army Signal Corp, today MACOM Technology Solutions (NASDAQ: MTSI) is a provider of analog chips used in optical, wireless, and satellite networks.

Why Does MTSI Stand Out?

1. Annual revenue growth of 15.8% over the last two years was superb and indicates its market share increased during this cycle
2. Projected revenue growth of 18.3% for the next 12 months is above its two-year trend, pointing to accelerating demand
3. Earnings per share have massively outperformed its peers over the last five years, increasing by 41.3% annually

MACOM’s stock price of $136.93 implies a valuation ratio of 34.9x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.

Nvidia (NVDA)

Market Cap: $4.37 trillion

Founded in 1993 by Jensen Huang and two former Sun Microsystems engineers, Nvidia (NASDAQ: NVDA) is a leading fabless designer of chips used in gaming, PCs, data centers, automotive, and a variety of end markets.

Why Will NVDA Beat the Market?

1. Impressive 125% annual revenue growth over the last two years indicates it’s winning market share this cycle
2. Share repurchases over the last five years enabled its annual earnings per share growth of 79.5% to outpace its revenue gains
3. Strong free cash flow margin of 45.4% enables it to reinvest or return capital consistently, and its growing cash flow gives it even more resources to deploy

Nvidia is trading at $180.82 per share, or 31.5x forward P/E. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members .

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