Investing.com -- Bank of America has upgraded ON Semiconductor to buy and downgraded NXP Semiconductors to neutral as part of its first-quarter analog semiconductor preview.

In a note to clients, the bank cited diverging earnings leverage and artificial intelligence exposure as the key differentiators between the two chipmakers.

Analyst Vivek Arya raised his price target for ON to $85 from $70, while cutting his NXP target to $230 from $245.

The moves reflect BofA's preference for companies with strong free cash flow generation and exposure to AI-driven growth in a mixed demand environment where data center and aerospace strength is offset by sluggish traditional auto and weak consumer markets.

On ON, Arya acknowledged the upgrade may be "potentially a tad early" given the slow auto and EV backdrop, but said the company's improving pipeline, solid free cash flow yield of roughly 6%, a $6 billion buyback commitment over three years and EBIT margin expansion potential to approximately 30% by 2028 make a compelling case.

"The stock is down 36% in the past 3 years vs. peers up 7% and SOX up 132% on auto/EV/Tesla-related weakness," he noted, framing the underperformance as a catch-up opportunity.

On NXP, BofA flagged limited earnings leverage of only 300 to 400 basis points of margin expansion modeled through 2028, a lack of AI products and higher exposure to consumer phones and IoT as reasons for the downgrade.

The firm also cited NXP's planned exit from high-margin communications infrastructure and radio frequency businesses as a headwind.

BofA's top large-cap analog pick remains Analog Devices, with MACOM Technology Solutions preferred in the small- and mid-cap space.