The AI hype train took semiconductor stocks to new heights last year. However, following a spectacular rally over the past couple of years, the semiconductor market is at a critical juncture. Hence, investors would be better served by diversifying away from semiconductor stocks to sell.
The irony is that with all the generative AI buzz, semiconductor demand fell last year. According to the Semiconductor Industry Association (SIA), global semiconductor revenues last year came in at $526.8 billion, an 8.2% drop year-over-year (YOY). The statistic reveals a rather deceptive façade, a mere smoke screen, masking underlying sector troubles. On that note, here are three semiconductor stocks to sell to optimize your portfolios better.
Semiconductor Stocks to Sell: Intel (INTC)
Intel (NASDAQ:INTC) is one of the oldest chipmakers and has fallen out of favor with investors over the past several years. Challenges in its manufacturing strategy and growing competition from its rivals have significantly weighed down INTC stock and its underlying business.
However, after years of trading in the red, INTC stock finished last year delivering single-digit gains. The tempered enthusiasm is attributable to the potential of its AI chip and the expansion of its foundry business. However, in recent months, we’ve seen multiple cracks emerge in these supposed catalysts, particularly with its foundry business.
It disclosed a whopping $7 billion loss from its foundry division in 2023, with more to come this year. Despite the support from the U.S. government, which has nearly $20 billion in funding, and punitive measures against China, Intel continues disappointing its investors. Also, it had to stop construction on one of its largest facilities in Ohio due to multiple market headwinds. Therefore, despite a bold vision, it’s tough to be a fan of Intel.
Texas Instruments (TXN)
Texas Instruments (NASDAQ:TXN) boasts a top position in discrete and analog integrated circuits markets (IC). Moreover, it’s been a remarkably rewarding investment, gaining 320% in the past decade. However, if we narrow down the time period, we’ll see that the stock has been rather laggard compared to the broader market.
Much of it is due to the growing competition in its niche, especially from companies like Analog Devices (ADI) that continue nibbling away at its market share. TXN has grown its top-line at just 3.84% in the past five years, lagging significantly behind ADI’s 18% jump. Moreover, TXN has greater exposure to low-growth areas such as discrete semiconductors and other IC segments.
To turn things around, TXN needs to diversify into more lucrative areas, such as AI, to breathe new life into its floundering business. For now, though, the road ahead will continue to be bumpy, with analysts expecting a 6% downside risk in its stock from current prices.
Broadcom (AVGO)
Broadcom (NASDAQ:AVGO) is one of the more diversified semiconductor plays, covering both semiconductor and infrastructure software segments. Its dual-pronged approach has proven incredibly successful for its business and its stock. For perspective, If you’d invested $10,000 in the company, you would have compounded your investment to an eye-watering $260,089 today. Just last year, the stock gained 118%, trumping the S&P 500’s 27% gain on the back of AI tailwinds.
However, shifting market dynamics and geopolitical tensions will likely weigh down the company’s operating results. Perhaps the biggest challenge is the U.S.-China trade conflict, with China forming roughly 32% of its revenues. In the latest episode of this never-ending saga, President Biden imposed $18 billion in tariffs on a variety of Chinese imports. CWith the escalating U.S.-China trade tensions, potential restrictions on semiconductor sales could have a massive impact on Broadcom’s sales.
Furthermore, another downer for its business is the drop in its legacy software businesses. CA Technologies and Symantec, are struggling due to growing competition and declining demand. Additionally, AVGO stock trades at a nosebleed valuation, roughly 13 times forward sales estimates, 76% higher than its 5-year average.
On the date of publication, Muslim Farooque did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.