What are we looking for?
Global semiconductor companies with high profit margins and strong cash generation that can withstand the sector’s notorious volatility.
The screen
Semiconductors have been among the most volatile corners of the global market in 2026, with share prices swinging sharply on every shift in the artificial-intelligence narrative. The sector has long been deeply cyclical, prone to boom-and-bust swings as supply gluts followed demand spikes. Some industry executives now argue that AI has changed that pattern, pointing to multiyear supply agreements and order books that are sold out years in advance. That view remains contested, and the industry’s history counsels caution, which is why this screen favours companies whose profitability and balance sheets can endure whatever the cycle delivers.
Using FactSet’s screening tool, I identified global semiconductor companies with durable profitability by applying the following criteria:
- traded in the semiconductors sector, according to FactSet
- market capitalization greater than US$10-billion
- net debt to EBITDA (earnings before interest, taxes, depreciation and amortization) of less than two times
- gross income margin greater than 60 per cent
- net income margin greater than 30 per cent
- positive forecast sales and earnings growth, based on analyst estimates
The nine companies that passed the screen were ranked by a multifactor assessment of four metrics: gross income margin, net income margin, forward price-to-earnings and free cash flow yield.
What we found
Nvidia Corp. NVDA-Q, the dominant designer of the graphics processing units used to train and run artificial-intelligence models, ranked first, posting the highest gross and net margins in the group at 74.1 and 63 per cent, respectively. Its forward price-to-earnings ratio of 21.5 sits roughly in line with the S&P 500’s forward multiple of about 20 times, a modest valuation for a company growing this quickly. In its latest quarter, ended April 26, Nvidia reported record revenue of US$81.6-billion, up 85 per cent year-over-year, driven by data-centre revenue of US$75.2-billion as cloud providers race to build computing capacity for AI. The company carries net cash, authorized an additional US$80-billion in share buybacks and raised its quarterly dividend. The main headwind is U.S. export policy, which left Nvidia with no sales of its Hopper data-centre chips to China in the quarter, down from US$4.6-billion a year earlier. Its next results are due Aug. 26.
SK hynix Inc., the world’s largest supplier of the high-bandwidth memory chips that sit beside artificial-intelligence processors, ranked second, carrying the lowest forward price-to-earnings ratio in the group at 8.5 and the highest free cash flow yield at 5.6 per cent. The discount reflects the so-called South Korea discount, a persistent valuation gap that South Korean-listed companies trade at because of governance concerns and limited access for foreign investors. However, the company is preparing a U.S. share listing expected to begin trading in July, which some analysts see as a catalyst to narrow the gap with Micron Technology Inc., a U.S.-based competitor in the memory space. In its latest quarter, ended March 31, SK hynix reported record revenue of 52.58 trillion won, about US$34-billion, at a 72-per-cent operating margin, and held a net cash position. Memory remains the most cyclical part of the industry, and slowing AI spending or faster competition from Samsung Electronics Co. Ltd. are key risks.
The information in this article is not investment advice. The author assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained above.
Arjun Deiva, CFA, is an MBA Candidate at the University of California, Berkeley, Haas School of Business.