While artificial intelligence (AI) chip stocks like Nvidia (NVDA) have helped to lead the broader market's rally, the rising tide of AI optimism hasn't lifted all semiconductor stocks equally. The industry is known for being vulnerable to cyclical demand trends - and while some chip stocks have soared on the basis of their AI exposure, others have lagged amid lingering inventory buildup issues and uneven demand in the automotive and smartphone markets.

But with the broader semiconductor industry poised for long-term growth, that simply means now is a good time to consider picking up shares of some underperforming names. With that in mind, here's one semiconductor stock that has been quiet so far in 2024, but could be on the verge of a much stronger performance in 2025.

About NXPI Semiconductors Stock

NXP Semiconductors NV (NXPI) is a semiconductor company that primarily focuses on the production of high-performance mixed-signal products such as microcontrollers, application processors, communication processors, analog and interface devices, security controllers, and sensors. The company serves key industries including automotive, Internet of Things (IoT), mobile, industrial, and communication infrastructure.

With its headquarters in the Netherlands, NXPI has operations across the Americas, Europe, the Middle East, and Asia-Pacific. The company has a market cap of $60.9 billion, and is included in both the benchmark S&P 500 Index ($SPX) and the Nasdaq-100 Index ($IUXX).

NXPI stock is up 2.9% on a year-to-date basis, lagging both the S&P 500 and the Nasdaq-100 by a significant margin. Over the last 52 weeks, the shares have gained just over 17%.

NXPI currently pays a dividend of $1.01 per share on a quarterly basis, which results in a 1.70% yield. The company has raised its dividend payments consistently for the past six years.

NXP Reports In Line With Analysts

NXP Semiconductors reported Q2 earnings results on July 22 that matched analysts' estimates. Revenue of $3.13 billion was down 5% from last year, while adjusted earnings of $658 million, or $3.20 per share, slipped 6.7% year over year.

During Q2, revenue from automotive came to $1.73 billion, down 7%, while revenue from IoT was $616 million, short of the market’s $624 million estimate. Non-GAAP gross margin was 58.6%, up 20 basis points YoY, while and non-GAAP operating margin fell 70 basis points to 34.3%. 

Adjusted free cash flow was $577 million, and NXPI concluded the quarter with a cash reserve of $3.26 billion, down slightly from the previous year’s $3.30 billion.

For Q3, management guided for revenue in the band of $3.15 billion to $3.35 billion, indicating a 5% decline at the mid-point of $3.25 billion. Non-GAAP gross margin is expected between 58% and 59%, with non-GAAP operating profit between 34.2% and 36%. Earnings for the quarter are anticipated between $3.21 and $3.63 per share.

UBS Upgrades NXPI Stock

Analysts are optimistic about NXPI stock, which has a consensus “Moderate Buy” rating, with a mean price target of $291.79 - indicating an upside potential of just over 20% from current prices. A total of 25 analysts are covering the stock, with 15 giving it a “Strong Buy” rating, 2 assigning a “Moderate Buy” rating, 7 maintaining a “Hold” rating, and 1 slapping NXPI with a “Strong Sell” rating.

Earlier this week, UBS analyst Francois-Xavier Bouvignies upgraded NXPI from “Neutral” to “Buy,” with a newly raised price target of $285. Bouvignies noted the stock’s outperformance relative to some of analog subsector peers, which the firm credited to NXPI's superior inventory management and relative resilience during the recent down cycle.

However, the analyst thinks NXPI is still undervalued amid lingering concerns over auto demand, and says NXPI looks set for a strong 2025 on improved margins and pricing. 

NXPI is currently priced around 17.61x forward earnings, which is a discount of 27% to the tech sector median. In other words, the semiconductor stock looks reasonably valued at current levels, based on expected earnings growth.

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On the date of publication, Ruchi Gupta did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.