2 Mooning Semiconductor Stocks with Competitive Advantages and 1 We Find Risky

The stocks featured in this article are seeing some big returns. Over the past month, they’ve outpaced the market due to some combination of positive news, upbeat results, or supportive macro developments. As such, investors are taking notice and bidding up shares.

However, not all companies with momentum are long-term winners, and many investors have lost money by following short-term trends. All that said, here are two stocks with the fundamentals to back up their performance and one that may correct.

One Momentum Stock to Sell:

Penguin Solutions (PENG)

One-Month Return: +28.2%

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

Why Does PENG Fall Short?

1. 2.8% annual revenue growth over the last five years was slower than its semiconductor peers
2. High input costs result in an inferior gross margin of 28.6% that must be offset through higher volumes
3. Underwhelming 4.4% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging

Penguin Solutions is trading at $23.05 per share, or 9.5x forward P/E. To fully understand why you should be careful with PENG, check out our full research report (it’s free).

Two Momentum Stocks to Watch:

Applied Materials (AMAT)

One-Month Return: +17.6%

Founded in 1967 as the first company to develop tools for other businesses in the semiconductor industry, Applied Materials (NASDAQ:AMAT) is the largest provider of semiconductor wafer fabrication equipment.

Why Does AMAT Stand Out?

1. Excellent operating margin of 28.7% highlights the efficiency of its business model
2. Strong free cash flow margin of 21.7% enables it to reinvest or return capital consistently
3. Stellar returns on capital showcase management’s ability to surface highly profitable business ventures

At $401.49 per share, Applied Materials trades at 32.9x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

KLA Corporation (KLAC)

One-Month Return: +23%

Formed by the 1997 merger of the two leading semiconductor yield management companies, KLA Corporation (NASDAQ:KLAC) is the leading supplier of equipment used to measure and inspect semiconductor chips.

Why Will KLAC Beat the Market?

1. Annual revenue growth of 16% over the last five years was superb and indicates its market share increased during this cycle
2. Superior product capabilities and pricing power are reflected in its best-in-class gross margin of 60.7%
3. Robust free cash flow margin of 32.8% gives it many options for capital deployment, and its rising cash conversion increases its margin of safety

KLA Corporation’s stock price of $1,745 implies a valuation ratio of 40.9x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.

High-Quality Stocks for All Market Conditions

ONE MORE THING: Top 5 Growth Stocks. The biggest stock winners almost always had one thing in common before they ran. Revenue growing like crazy. Meta. CrowdStrike. Broadcom. Our AI flagged all three. They returned 315%, 314%, and 455%, respectively.

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Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Tecnoglass (+1,754% five-year return). Find your next big winner with StockStory today.