NXP, Skyworks, others could outperform as chip levels return to normal: Wells Fargo
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NXP Semiconductors (NASDAQ:NXPI), Skyworks Solutions (NASDAQ:SWKS), Ambarella (NASDAQ:AMBA) and a number of other semiconductor stocks could outperform the broader industry as chip inventory levels rise later this year, presenting a "headwind to cyclically focused semiconductor stocks," Wells Fargo said in a note to clients.
A team of analysts, led by Gary Mobley, noted that inventory levels likely bottomed in the third-quarter of 2021, citing data from Gartner's inventory tracker index. Using that, along with their own analysis, semiconductor investors should be wary of companies that are tied to cyclical changes, as the gap for demand and supply starts to shrink. In addition, if chip order/manufacturing lead times start to shrink and inventory starts to increase, these stocks could underperform. 
However, those tied to radio frequency and the automotive spaces are likely to outperform, including the aforementioned companies, as well as Qorvo (NASDAQ:QRVO), Allegro MicroSystems (NASDAQ:ALGM) and Wolfspeed (NYSE:WOLF). Other chip companies that could benefit are Cadence Design Systems (NASDAQ:CDNS) and Synopsys (NASDAQ:SNPS). 
The analysts said that the automotive semiconductor market should see "very strong demand" through 2023 as global light-vehicle sales have been hurt by inventory and the pandemic created "pent-up replacement demand for consumer and fleet vehicles.
In addition, the researchers noted that auto deal inventories are low, while semiconductor inventories in the supply chain are "hand-to-mouth" and chip content per vehicle is accelerating, largely due to electric vehicle sales around the world. 
"Any semiconductor company with high automotive end market exposure, in our view, may see prolonged above-average growth (e.g., NXPI & ALGM)," the analysts wrote. "We also like secular growth stories WOLF & AMBA, that more purely benefit from xEV & ADAS/AV penetration, respectively."
In addition, the Wells Fargo analysts noted that inflationary factors are affecting the value of inventory and increasing the days inventory outstanding ratio, as price increases show up quicker.
Earlier this month, Skyworks Solutions was mentioned by Goldman Sachs as one of the top Russell 3000 stocks with strong balance sheets, high margins and above-average free cash flow yields, amid tightening financial conditions.