Semiconductor chips are crucial components for electric vehicles (EVs) and other automobiles. Although, according to the CEO of BMW, chip shortage is expected to remain a problem for the auto industry in 2023, the robust demand for electric vehicles, hybrids to traditional combustion engine cars is expected to drive the auto chip market growth significantly.
The global chip shortage forced many auto manufacturers to cut their production, hampering their overall supply. However, growing corporate investment and government assistance to scale up production could help alleviate the shortage in the coming months. Furthermore, the demand for auto chips should continue to climb as vehicles become increasingly technology-reliant. The global semiconductor chip industry is expected to reach about $600 billion in 2022.
Given this backdrop, we think one should consider investing in fundamentally sound auto chip stocks NXP Semiconductors N.V. (NXPI) and Texas Instruments Incorporated (TXN). While they are currently trading significantly below their 52-week highs, they could rally significantly in the coming months.
Click here to checkout our Electric Vehicle Industry Report for 2022
NXP Semiconductors N.V. (NXPI)
Headquartered in Eindhoven, the Netherlands, NXPI offers semiconductor products, including microcontrollers, application processors, and i.MX application processors, and i.MX 8 and 9 families of applications processors; communication processors; wireless connectivity solutions.
NXPI's total revenue increased 21.2% year-over-year to $3.04 billion for the fourth quarter ending December 31, 2021. The non-GAAP operating income grew 38.7% from its year-ago value to $1.06 billion, while its adjusted net income improved 43.3% from its prior-year quarter to $1.12 billion. The company's EPS rose 107.4% year-over-year to $2.24.
Analysts expect NXPI's revenue to increase 20.9% year-over-year to $3.10 billion for the first quarter ending March 2022. The consensus EPS estimate of $3.19 represents a 38.4% improvement year-over-year during the first quarter. In addition, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters.
The stock has declined 24.9% year-to-date. In addition, closing yesterday's trading session at $171.03, the stock is currently trading 28.7% below its 52-week high of $239.91, which it hit on December 7, 2021.
NXPI's POWR Ratings reflect this promising outlook. The company has an overall rating of B, which translates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
NXPI is also rated a B grade for Growth and Quality. Within the A-rated Semiconductor & Wireless Chip industry, it is ranked #18 of 96 stocks.
To see additional POWR Ratings for Value, Momentum, Stability, and Sentiment for NXPI, click here.
Texas Instruments Incorporated (TXN)
TXN is engaged in designing, manufacturing, and selling semiconductors to electronics designers and manufacturers worldwide. It has two operational segments, Analog segment, which offers power products to manage power requirements at various levels using battery-management solutions, DC/DC switching regulators, AC/DC, and isolated controllers; and Embedded Processing which offers microcontrollers that are used in electronic equipment, digital signal processors for mathematical computations, and applications processors for specific computing activity.
During the fourth quarter ending December 31, 2021, TXN's revenue increased 18.5% year-over-year to $4.83 billion. The operating profit grew 38.1% from its year-ago value to $2.50 billion, while its net income improved 26.7% from its prior-year quarter to $2.14 billion. The company's EPS rose 26.1% year-over-year to $2.27.
The consensus EPS estimate of $2.18 represents a 13.3% year-over-year improvement during the first quarter ending March 2022. Analysts expect TXN's revenue to increase 10.1% year-over-year to $4.72 billion for the same period. In addition, it has an impressive earnings surprise history, as it surpassed the consensus EPS estimates in all of the trailing four quarters.
The stock has declined 8.4% over the past nine months. In addition, closing yesterday's trading session at $175.11, the stock is currently trading 13.4% below its 52-week high of $202.26, which it hit on October 25, 2021.
TXN's strong fundamentals are reflected in its POWR Ratings. The stock has an overall B rating, which equates to Buy in our POWR Ratings system. The stock also has a B grade for Quality. In the same industry, it is ranked #39.
In total, we rate TXN on eight different levels. Beyond what we've stated above, we have also given TXN grades for Value, Growth, Sentiment, Stability, and Momentum. Get all the TXN ratings here.
NXPI shares were trading at $170.00 per share on Thursday afternoon, down $1.03 (-0.60%). Year-to-date, NXPI has declined -25.01%, versus a -7.54% rise in the benchmark S&P 500 index during the same period.
About the Author: Spandan Khandelwal
Spandan's is a financial journalist and investment analyst focused on the stock market. With her ability to interpret financial data, she aims to help investors evaluate the fundamentals of a company before investing.
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