J.P. Morgan: NXP’s automotive chip growth is not driven by inventory restocking, while data centers emerge as a new growth driver

How much did the third quarter beat expectations, and what is the fourth-quarter guidance?

NXP’s third-quarter 2026 revenue was 3.786 billion dollars, up 8.3% sequentially and approximately 19% year over year, slightly above the market consensus of 3.754 billion dollars; revenue rose sequentially across all end markets.
Non-GAAP earnings per share were 4.20 dollars, above market expectations of 4.12 dollars; non-GAAP gross margin was 58.6%, up 1.6 percentage points year over year and 0.6 percentage points sequentially.
The midpoint of the company’s fourth-quarter revenue guidance was 3.85 billion dollars, up approximately 2% sequentially and broadly in line with the market consensus of 3.871 billion dollars, but slightly below the buy-side expectations JPMorgan had previously heard. The company expects sequential revenue growth across all end markets, while mobile revenue will still decline approximately 15% year over year.
The midpoint of fourth-quarter non-GAAP gross margin guidance was 59%; the company attributed the improvement to higher revenue and capacity utilization. The midpoint of earnings per share guidance was 4.36 dollars, in line with market expectations.

Third-quarter automotive revenue reached 2.07 billion dollars, up 6.8% sequentially and exceeding 2 billion dollars for the first time. Management said growth came from increased product content related to software-defined vehicles, electrification, connectivity and radar, rather than broad-based customer inventory restocking.
The software-defined vehicle business currently has an annualized revenue run rate exceeding 1.5 billion dollars, and the company continues to target 2 billion dollars in 2027. Subsequent growth relies on a design win for the Volkswagen and Rivian joint venture’s zonal architecture platform, initial shipments of S32K5 in China expected to begin in the first quarter of 2027, and a larger ramp-up of S32K5 and S32N from late 2027 through 2028.

Third-quarter industrial and IoT revenue was 802 million dollars, up 39% year over year; within that, industrial revenue rose nearly 50% year over year, with data centers, factory automation and medical applications as the main drivers.
The data center business remains relatively small. Management expects related revenue in 2026 to exceed its previous outlook of more than 500 million dollars and to surpass 1 billion dollars within the next few years, driven by increased control-plane product content in AI computing infrastructure.

The company expects double-digit percentage revenue growth in 2027 and gross margin to rise to approximately 60% during the year. JPMorgan believes that a book-to-bill ratio well above 1, lead times exceeding 16 weeks for approximately 80% of orders, and accelerated share buybacks have improved growth visibility.
JPMorgan raised its 2027 adjusted earnings per share forecast from 17.60 dollars to 18.30 dollars, while maintaining its 300 dollar price target and neutral rating; the target is based on approximately 16 times forecast 2027 earnings. The bank wants to see execution progress next year and is waiting for more detailed long-term targets at the investor day.