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Avoid the One Chip Wonder

There's a lesson to be learned from these former highfliers in the chip industry.

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Since its inception in the 1950s, the semiconductor industry has been the key driving force behind the numerous technological advances that have transformed the world. Just in the last 20 years, the semiconductor revolution has brought us numerous life-changing advances such as the computer, mobile phone, and Internet. However, the profound influence that chipmakers have had on the world has not necessarily translated into long-term success and profits for the companies involved. In fact, throughout history, the industry's wasteland has been littered with many once high-flying firms that changed the world only to crash and be forgotten over time.

As investors, it's important to remember this oft-repeated lesson when looking at the landscape of semiconductor stocks. The latest "one chip wonder" company with the hot new technology has come many times before and will come many times again. By knowing how this story often ends, we can recognize and avoid the trap of investing in these firms, even though the rest of the stock market may be enamored with them in the short run.

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Andy Ng does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.