Buy this chipmaker as demand for autos chips picks up, Loop Capital says

NXP Semiconductors has a strong growth runway ahead, according to Loop Capital. Analyst Gary Mobley initiated coverage of the Netherlands-based semiconductor manufacturing and design company with a buy rating and $300 price target. That forecast suggests more than 32% upside for the stock, which is down more than 1% year to date. “When compared to peers, it is our position that NXPI is aligned with growth trends in automotive electronic system design, and as a result, should grow slightly faster than the overall automotive semiconductor market over the longterm,” Mobley said in a Monday note to clients. NXPI YTD mountain NXP Semiconductors performance this year. He noted that about 56% of NXP’s total revenue comes from its autos chips business and that the company had 10% market share as of 2023, making it a top supplier. Given NXP’s strong ties to the automotive supply chain — which already experienced a shock in 2020 and 2021 due to the Covid pandemic — the company lost popularity among investors. Now, with the stock at current levels, it may be an attractive entry point for investors, Mobley said. “We believe tier-one automotive electronic sub-system suppliers are managing component inventories at unsustainable low levels, much like 2019,” Mobley said. “With only modest acceleration in light vehicle production, which we are predicting for 2025, we anticipate an automotive chip inventory re-stock period to follow (e.g., chip DIO increase). A similar set-up may be taking shape in the Industrial end market, which is also very macro/interest-rate sensitive.” The analyst said that NXP’s margins have remained healthier than peers throughout the down cycle between 2023 and 2024. He added that the company’s gross margins have, in fact, trended at all-time highs throughout the time period. Mobley thinks investors should be overweight on stocks with high exposure to the automotive end market and on companies exposed to the fastest growing automotive trends, such as powertrain electrification and autonomous driving technologies. NXP has a leading position in radar sensors, priming it to be a winner in the autonomous driving space, he noted. “NXPI checks many of these boxes in automotive secular growth drivers,” he said.