Amid the tech boom, the demand for semiconductors - powering everything from artificial intelligence (AI) to self-driving cars - is climbing. Despite this, the PHLX Semiconductor Index ($SOX), which tracks the performance of the 30 largest semiconductor stocks in the U.S., tumbled nearly 5.8% in April, surprising many.

But hold tight, say Bank of America's (BAC) equity strategists, led by Vivek Arya. Factors dampening chip industry sentiment include stagflation fears, rising interest rates, geopolitical tensions, AI fatigue, and lackluster outlooks from industry giants. Demand from the consumer electronics, enterprise, and auto sectors is also soft. That said, April's semiconductor sell-off is typical for the course, and May usually brings brighter days. Cyclical factors are poised to boost the sector, with inventories stabilizing and sales expected to climb through mid-2026.

Zooming in on the automotive and industrial segments, Arya predicts a sales dip bottoming out in Q3 before rebounding, fueled by EV adoption. Chipmaker NXP Semiconductors N.V. (NXPI) is BofA’s favorite pick here, with a projected 16% upside to their price target of $300.

Let’s take a closer look at the stock.

About NXP Semiconductors Stock

Incorporated in 2006, Netherlands-headquartered NXP Semiconductors N.V. (NXPI) offers a range of semiconductor products, like microcontrollers, communication processors, and wireless solutions for diverse applications, including automotive and Internet of Things (IoT). It sells worldwide to original equipment manufacturers, contract manufacturers, and distributors.

Valued at $66.1 billion by market cap, shares of NXP Semiconductors have surged 53.6% over the past 52 weeks, outperforming the S&P 500 Index's ($SPX) 25.4% returns, and roughly on pace with the iShares Semiconductor ETF’s (SOXX) performance. The stock offers an annualized dividend of $4.06, which translates to a 1.56% dividend yield.

Priced at 20.78 times forward earnings and 4.97 times sales, NXP Semiconductors trades at a discount to many of its peers, such as Analog Devices (ADI) and Microchip Technology (MCHP).

NXP Semiconductors’ Q1 Beats Wall Street Projections

Shares of the chipmaker rose after the company reported its Q1 earnings results on April 29. While total revenue of $3.1 billion was in line with Wall Street's estimates, its non-GAAP EPS rose 1.6% year over year to $3.24 per share, topping analysts' estimates by about 2%.

The company witnessed sluggishness in the automotive, and communication infrastructure & others markets. While automotive segment revenue declined 1% annually and 5% sequentially, the communication infrastructure & others segment was down 25% year over year and 12% sequentially.

In Q2, NXP Semiconductors expects revenues to range between $3.025 billion and $3.225 billion, indicating a 5% annual fall at the mid-point. Moreover, non-GAAP EPS is projected to be between $3 and $3.41.

Analysts tracking NXP Semiconductors predict its EPS to soften to $12.43 in fiscal 2024 before returning to 14% year over year growth to $14.17 in fiscal 2025.

What Do Analysts Expect for NXP Semiconductors Stock?

BofA analyst Vivek Arya suggested that NXP's Q1 results and guidance signal a “soft landing” for the semiconductor industry's automotive and industrial sectors. Moreover, noting the apparent success of NXP Semiconductors’ soft-landing management approach – holding back on product oversupply – Arya reiterated his “Buy” rating and target price of $300 for NXPI stock, which indicates that the shares could rally as much as 16% from current price levels.

NXPI has a consensus “Moderate Buy” rating overall. Of the 25 analysts covering the stock, 13 recommend a “Strong Buy,” two give a "Moderate Buy," nine suggest a “Hold” rating, and one has a "Strong Sell." 

The average analyst price target for NXP Semiconductors is $268.25, indicating a potential upside of 3.7%. The Street-high target price of $370, newly raised by Evercore ISI Group after earnings, suggests that the stock could rally as much as 43%.