NXP Semi (NXPI) Low Demand From Automotive Chips A Concern

The last reporting quarter is consider a weaker one as NXPI has missed the EPS estimates and their inventory levels increase.

For the upcoming reported quarter, market is expecting NXPI revenue to decline 5.3% year on year to $3.12 billion, a deceleration from its flat revenue growth in the same quarter last year. Adjusted earnings are expected to come in at $3.20 per share.

So how should we look at NXPI? I would be looking at its automotive chips demand, this is something that is going to make a difference since there have been talks of generative AI having a huge impact on how large corporations do business.

Since the earlier focus are on big names like Nvidia and AMD, I guess it is time to look at how lesser-known (but still profitable) semiconductor stock would be benefitting from the rise of AI.

The global automotive semiconductor market is expected to grow at a CAGR of 11.97% from 2022-2028. The rising development of autonomous vehicles increases the demand for automotive semiconductors for several reasons, mainly due to the rising need for sensors, processors, and communication.

The global automotive semiconductor market is highly fragmented, with many local and international players. The global automotive semiconductor market is fragmented due to local and international players. The leading global automotive semiconductor market vendors are Robert Bosch, Continental, Infineon Technologies, NXP Semiconductors, DENSO Corporation, Renesas Electronic Corporation, and others. The competition among these players is intense.

The rapidly changing technological environment can adversely affect vendors as customers expect continual innovations and upgrades in the automotive industry. The present scenario forces vendors to refine their unique value proposition to achieve a strong market presence.

Based on 23 Wall Street analysts offering 12 month price targets for NXP Semiconductors in the last 3 months. The average price target is $292.19 with a high forecast of $370.00 and a low forecast of $220.00.

The average price target represents a 8.50% change from the last price of $269.29. If we consider the potential of electric and autonomous vehicles demand picked up, NXPI would be in a good stead to be supplying the chips required.

So for EV, we should be looking beyond the generative AI, and more on the automotive chips demand from manufacturers.

If we were to look at NXPI, considering that investors has managed to gain more than 18% on top of the dividends, and with the AI demand now moving into generative Ai, and for NXPI, their forte is in the automotive semiconductor chips.

There is rising development of autonomous vehicles and this should help NXPI in the long term as they benefit from the chips demand.

As we know that semiconductor stocks are suffering sell off and they have been down for most of last week, and NXPI is not spared as well.

But if we were to look deeper on what each semiconductor does and the size, the focus for investors might shift to smaller semiconductor chip makers like NXPI, hence, we would just need a slight improvement or positive guidance from NXPI to help push its stock price up.

So I would see this as a chance to buy but we need to watch the price action when it trades before its second quarter earnings release.

Bigger semiconductor stocks might continue to suffer a downside, but there is a chance that investors might turn to smaller semiconductor stocks and see potential in their business model.

NXPI has a unique side as they are producing automotive semiconductor, this could help if electric vehicle market start to pick up and AI wave is moving into the EV sector.

For the longer term, I see NXPI a potential stocks to hold for the AI hype in the EV sector.

Appreciate if you could share your thoughts in the comment section whether you think NXPI would benefit from investors shift from big semiconductor to smaller one?

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.