It's becoming increasingly clear that the automotive industry will be the target of massive amounts of investment in the coming decade, and well-positioned investors could profit. That's why I like semiconductor stocks (rather than automakers themselves) that are building the tech needed for electric vehicles (EVs), advanced driver assist systems (ADAS), and eventually (maybe someday) fully autonomous vehicles. Chip companies are highly profitable, shareholder friendly, and could gobble up the lion's share of market returns for these focused tech movements. 

Given this assumption, NXP Semiconductors (NXPI -3.34%) is a top stock to watch right now. The company issued some subdued guidance for 2023, but shares could be a timely purchase this year for investors eyeing the long-term potential of auto technology. 

A strong 2022, but what about 2023?

NXP logged a solid close to 2022, reporting year-over-year revenue growth of 9% to $3.31 billion. Earnings per share (EPS) were up 23% year over year to $2.76, benefiting from higher profit margins (driven by higher utilization and efficiency of NXP's manufacturing operation) as well as the company's ongoing share repurchase program. 

NXP reported that over 54% of its sales came from the auto industry in Q4, driven by its diverse product portfolio, which includes radar, battery management, inverter controls for EV motors, and other vehicle system microcontrollers.

However, 2023 is going to get off to a bumpy start. At the midpoint of guidance, revenue of $3.0 billion will be down 4% year over year, and down 9% sequentially from Q4 2022. EPS is expected to be $2.31, plus or minus $0.20, down about 7% year over year and down 16% sequentially. 

This isn't an unexpected decline. NXP management said automotive sales should remain flat quarter over quarter in Q1 2023 before notching some growth later in the year as some new supply comes online. The chip shortage is mostly over, except in the auto industry where semiconductor manufacturers remain mostly booked out for the rest of 2023.

Industrial and IoT (internet of things) chips were a top growth driver last year, coming in at 18% of revenue last quarter. However, some weakness in end markets is being worked through at the beginning of 2023 too. The communications infrastructure segment (15% of revenue last quarter) should be flat year-over-year in Q1 2023.

The real issue with immediate-term guidance is coming from the smartphone portion of NXP's sales. Though small at just 12% of Q4 2022 revenue, there's a severe downturn in the Android phone space right now as end manufacturers work through excess inventory. Mobile chip sales are expected to be down in the mid-40% range year over year to start the new year. Ouch!

Those stormy clouds over mobile should begin to clear by mid-2023, though. The main takeaway: NXP's primary growth driver, automotive chips, should keep the company headed in the right direction in the year ahead. 

Is NXP stock a top chip manufacturing buy now?

More important than the immediate future, NXP says it still foresees being able to reach its 2024 guidance for $15 billion in revenue (which would be up roughly 14% from the $13.2 billion hauled in in 2022).

If NXP delivers, $15 billion in sales in 2024 means this will be a slower-moving company than what shareholders might have grown accustomed to the last couple of years during the peak of the chip shortage. But if you're looking for a more consistent and stable way to profit from EV and other auto technology developments in the coming years, NXP might be the stock for you. Shares currently offer a 1.9% annualized dividend yield, and NXP tends to dole out any remaining free cash flow as a share repurchase -- which helps grow earnings per share over time. 

So I'll reiterate a call I made a few months ago after the last quarterly update: NXP Semiconductors isn't an exciting high-growth company. But for the right investor, that's plenty ok. NXP brings some stability and shareholder-friendly performance to those investors that still want to participate in the expansion of the EV industry without the extreme drama. Shares trade for a fairly valued (in my estimate) 19 times trailing-12-month earnings per share and 21 times trailing-12-month free cash flow. Other top chip stocks to consider here include Texas Instruments (TXN -1.23%). 

Whichever horse you choose in this race, NXP's outlook for 2023 indicates demand for automotive technology is strong. This should be a top theme for investors to focus on in the 2020s.