NXP Semiconductors (NASDAQ: NXPI) is a stock that’s projected for exponential growth in the future, with 50% of its revenues coming from the automotive sector and this figure is only going to increase moving forward. Vehicles are increasingly becoming more dependent on technology content, especially with the continued adoption of electric vehicles (EVs) that have on average twice as many semiconductors as gasoline-powered vehicles. The global EV market is expected to grow at a CAGR of 24.5% between 2022 and 2028 according to FNF Research. Furthermore, President Joe Biden set the goal for half of the vehicles sold in the US to be electric, fuel cell, or hybrid-powered by 2030. All of this sets the stage for NXPI to be fuelled by strong and sustainable tailwinds.
NXPI’s Competitive Positioning
NXPI has a competitive positioning in the semiconductor and EV market as it focuses on creating chips for the power control systems of these vehicles. Some of the applications of these chips include for battery management and network sensors. The company also serves other markets that are also due to experience explosive growth, including industrial IoT, mobile, and RF power for 5G infrastructure. Due to the strength of demand for these chips, NXPI is struggling to service its orders, so it is ramping up its production capacity considerably. At present all orders have a delivery date of a year or longer due to order book congestion.
Potential Acquisition by Samsung
A rumor that has been circulating in the news recently is Samsung’s purchase of NXPI. Samsung is reportedly looking to secure a stake in the automotive chip market with this purchase, as well as create an advantage over a major competitor. Samsung competes with Taiwan Semiconductor Manufacturing (NYSE: TSM) in its chip foundry business, and NXPI sources some of its chips from TSM, which would take a key customer away from its competitor. While the rumor remains unconfirmed, the company’s stock price rallied after the release of the news, gaining 4%.
NXPI’s Projected Financials
Due to the heavy demand for its chips, NXPI expects to grow its revenues considerably over the next several years. The company anticipates that its revenues will grow 8 to 12 percent until 2024. The MarketBeat consensus price target for NXPI is $222.95, which at present it is significantly underperforming by 30.2%. In addition to growing its revenues, its EPS is also expected to increase, which could rise faster if it is able to successfully deliver on its backlogged orders. The company’s EPS is projected to rise each quarter to $3.57 in FQ4 2022.
NXPI is also exploring other avenues to increase the value of its shares to investors. These include the continued rollout of its share repurchase program and its recent dividend increases. The company announced in 2022 that it will purchase $2B worth of shares, which is on top of the previous $1.35B remaining from the previous share repurchase authorization. A 50% increase in the company’s cash dividend was also announced which pushed it to $0.845.
The Bottom Line
NXPI can be considered equal parts a semiconductor stock as well as an EV stock as it supplies vital components to this industry that is poised strongly for future growth. The company is currently unable to keep up with existing demand, and its potential acquisition by Samsung has left investors feeling very bullish about the company’s prospects. Overall, the company is in a nice competitive position to benefit from the rise in the semiconductor market as well as EVs and is actively returning value back to its investors through share repurchases and dividend increases.