We recently published a list of Analysts are Recommending These 10 AI Semiconductor Stocks Despite Selloff. Since NXP Semiconductors N.V. (NASDAQ:NXPI) ranks 10th on the list, it deserves a deeper look.
Despite the concerns around AI stock valuations, some analysts believe companies are just getting started with the AI revolution and have a long runway for this bull run. Last month Cantor Fitzgerald analysts said in a note that AI semiconductor companies were positioned well heading into the second-quarter earnings season. They also said strengths in NAND and HDD markets and fiscal discipline make data storage companies attractive.
“We continue to believe that AI-leveraged names are still the most attractive to own heading into earnings,” Cantor analysts led by C.J. Muse said.
Cantor’s analysts said that companies that make semiconductor equipment are still in the early cycle of recovery.
“We are now five quarters into the recovery versus the average typical cycle of nine quarters and believe this cycle will be even more elongated,” they said.
Deutsche Bank also expects strong performance from AI-driven semiconductor stocks in the second-quarter earnings season. However, the firm observes that investors are becoming more selective. Analyst Ross Seymore highlighted that while optimism persists around the current AI leaders, there is growing caution about which companies will sustain or begin to show financial gains amid lingering uncertainty about the momentum’s longevity.
Melissa Weathers, another Deutsche Bank analyst, noted that semiconductor stocks have surged by 10-20% or more since the beginning of the second quarter, with price-to-earnings ratios approaching or exceeding previous highs. She emphasized that future upward movement will likely depend on revisions to earnings estimates.
For this article we picked 10 AI semiconductor stocks Deutsche Bank and Cantor Fitzgerlad are bullish on. With each stock we have mentioned the number of hedge fund investors. Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
NXP Semiconductors NV (NASDAQ:NXPI)
Number of Hedge Fund Investors: 40
Cantor Fitzgerald increased its price target for NXP to $350 from $325. The new price target presents an upside potential of 33%.
NXP Semiconductors is not directly exposed to the AI or data center chips market. The company makes chips for IoT, industrial applications and cars. Amid a slowing automotive demand, some analysts are reluctant about NXP. However, some of the demand headwinds in the automotive segment could be offset by growth in hybrid control units and 48V systems, in addition to radar transceivers, ADAS components, and UWB connectivity. The company’s strengths in 32-bit Microcontrollers (MCUs) and RFID could also boost the stock in the future. NXP’s gross margins are stable at around 58%, with operating margins expected to rise from 35% in FY’24 to 36% over two years. Free cash flow margins should improve to the mid-20% range, translating into a 10% FCF growth.
NXPI shares are trading at a forward P/E ratio of 18.55, much lower than the industry average of 25. The stock could be a long-term buy for patient investors.
Aristotle Large Cap Growth Strategy made the following comment about NXP Semiconductors N.V. (NASDAQ:NXPI) in its Q3 2023 investor letter:
“We sold NXP Semiconductors N.V. (NASDAQ:NXPI) to reduce our exposure to the automotive sector in semiconductors following the strong returns over the past 3 years. We are seeing early data of slowing global auto sales due to macroeconomic conditions and higher interest rates. While we think this may be a shorter-term slowdown, the risk is increasing of elevated inventory levels and pricing headwinds.”
READ NEXT: Analyst Sees a New $25 Billion “Opportunity” for NVIDIA and Jim Cramer is Recommending These Stocks.
Disclosure: None. This article is originally published at Insider Monkey.
Hedge Fund Resource Center