These are the best chip stocks to ride the auto industry's EV race, Cowen says

Published Mon, Dec 13 202110:31 AM EST

While electric vehicle makers like Tesla , Rivian and Lucid might grab all the headlines, there's a big investing opportunity around the semiconductor companies that are integral to EVs, according to Cowen. The firm said it's "still too early to parse specific winners," but put together a basket of outperform-rated chip names that have significant exposure to the rapidly growing EV market. "We believe the automotive industry is going through the most dramatic transformation in its history, driven by the simultaneous disruptive forces of electrification and intelligence / autonomy," analysts led by Matthew Ramsay said Sunday in a note to clients. "We anticipate a tipping point in EV adoption driven by increased consumer awareness, improving economics, and government / regulatory support will drive material power semiconductors growth throughout the decade-plus trend," the firm added. NXP Semiconductor is one of the names Cowen pointed to, and the firm has an outperform rating on the stock. The firm noted that NXP's products focus on the "brains" of electrification. The company has "exposure to a [broad] suite of automotive content drivers" including advanced driver-assistance systems and in-vehicle connectivity. Ramsay added that the company also stands to benefit from the buildout of EV charging infrastructure. "[W]e believe NXP's portfolio of connectivity assets and processor enables a significant level of attach for axillary components such as sensors and security," he wrote. Another name that made Cowen's list is Wolfspeed . The firm believes the automotive power devices market will register a compound annual growth rate of 30% between 2022 and 2026, which means there's upside ahead for Wolfspeed. The company holds about 60% of market share in silicon carbide wafers, according to Cowen. This technology is key since it facilitates longer vehicle ranges. Range anxiety, or the fear that drivers could run out of power with no charger in sight, is one of the reasons some consumers are reluctant to go electric. Ramsay pointed to Wolfspeed's newly built plant in Mohawk Valley, New York, which is expected to increase production in 2023. Additionally, he noted that the company has device supply agreements with General Motors and BorgWarner, among others. Cowen has an outperform rating on the stock. The firm said investors are overlooking the "true magnitude of semis content growth," as EVs make up a greater portion of vehicles sales. In August, President Joe Biden called for 50% of new car sales by 2030 to be electric vehicles. Cowen argues that EV penetration will "take place faster than is widely appreciated," although forecasting EV sales has traditionally proven difficult. On Semiconductor also makes the firm's list of chip stocks to watch thanks to EV exposure. Cowen said the company has been making "especially significant progress" in its silicon carbide portfolio. On Semiconductor recently acquired silicon carbide manufacturer GT Advanced Technologies, and the company has a target of hitting around a $1 billion run rate in silicon carbide revenues exiting 2023. Cowen has an outperform rating on the stock. —CNBC's Michael Bloom contributed reporting.

Microprocessors on a circuit board displayed at the Mobile World Congress in Barcelona, Spain, March 2, 2015.

Simon Dawson | Bloomberg | Getty Images

The firm said it's "still too early to parse specific winners," but put together a basket of outperform-rated chip names that have significant exposure to the rapidly growing EV market.