Chip maker NXP Semiconductors (NXPI) is climbing 3.5% after investment bank Morgan Stanley raised its rating on the shares to Overweight from Equal Weight. NXPI specializes in selling chips for use in automobiles and industrial solutions.

Why Morgan Stanley Is Bullish on NXPI

The investment bank believes that the auto-chip market is poised to stabilize, leaving NXPI well-positioned to expand going forward. Additionally, Morgan Stanley thinks that the chip maker's gross margins can rise as its shipments to channel sellers increase and it cuts costs.

A close up of a circuit board, its microchips creating a powerful computing system.

What's more, the investment bank predicts that the overall revenue generated by the auto chip sector will increase 6% in 2026 after falling 4% in 2025. Finally, Morgan Stanley is convinced " that the [microcontroller unit] cycle is finally bottoming." Microcontrollers are frequently used in automobiles.

The investment bank raised its price target on the shares to $257 from $231.

Another Investment Bank Was Also Recently Bullish on NXPI

Goldman Sachs expects analysts' estimates for NXPI to stabilize in Q2 before increasing in the second half of this year and in the first half of next year. Over the longer term, the investment bank predicts that NXPI will benefit from the continuous growth of the auto-chip market. It kept a Buy rating on the shares.

While we acknowledge the potential of NXPI, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than NXPI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.

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Disclosure: None. This article is originally published at Insider Monkey.