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While most of the Wall Street firms we cover are cautiously optimistic for the chip sector for the second quarter and going forward, high multiples could limit the upside for even the best names. With the iPhone 6 vendors most likely receiving orders, some of the top names will benefit strongly in the third quarter, as a mid to late fall release for the highly anticipated device is expected.

A new report from Merrill Lynch highlights the top semiconductor names, and it also points to three stocks the firm is very cautious on. We have featured many of the top names to buy recently, and will continue to during earnings season. However, investors may want to examine their portfolios to see if they own the three names that Merrill Lynch has rated at Underperform.

Fairchild Semiconductor International Inc. (NASDAQ: FCS) makes the Underperform list and may be a smaller cap name for investors to consider selling. With it trading at 17 times 2015 earnings, the Merrill Lynch analysts see the stock at a large premium to its five-year median multiple of 13 times earnings.

They also cite downside pressures that could come from a slowdown in the cycle, inventory correction, margin pressures and slower-than-expected sales growth. This is crucial as analog chips have long product cycles that could mask competitive issues and/or share shifts, especially if PC and consumer markets weaken. If Merrill Lynch is right, there could be some significant downside coming. The Merrill Lynch price target for the stock is $12. The Thomson/First Call consensus target is $15. Shares traded Monday morning at $15.40.

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Marvell Technology Group Ltd. (NASDAQ: MRVL) is a tech stock investors have waited on for years for its ship to come in, and according to Merrill Lynch, they may have to continue waiting. The analysts concede there are some positives that have emerged for the company in the last year.

The team also pointed out Marvell’s gross margin declines in lower margin wireless products, a very competitive applications processor market. Another risk is a large vendor loss as a negative. The Merrill Lynch price target is $14, and the consensus target is $16.74. Marvel traded Monday morning at $14.05.

NVIDIA Corp. (NASDAQ: NVDA) remains Silicon Valley’s top graphics chip company, and many on Wall Street, even those who are positive on the stock, have cautioned investors to look for perhaps a better entry point.

The Merrill Lynch team feels that NVIDIA’s stock on a multiple basis is fully valued at current levels. They point to risks like decelerating margins, lack of visibility around growth drivers and intense competition that could likely keep a lid on any major multiple expansion in the foreseeable future. The Merrill Lynch price target is $19, while the consensus number is at $19.27. Shares traded at $19.13 Monday morning.

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Clearly Merrill Lynch is not pounding the table to short these stocks, as they all have merit and reasonably stable business. The key aspect for all three is that the analysts see them as fully valued at these levels. With that in mind, any earnings miss or weak forward guidance could hit the stocks hard. In other words, no room for error.