Skyworks Solutions, a chipmaker known for supplying chips for Apple’s iPhones, presents an enticing opportunity for investors looking to capitalize on the growing artificial intelligence (AI) market. While Nvidia has been the go-to stock in this space, some investors may feel they have missed out on its lofty valuation. However, Skyworks offers a cheaper alternative with the potential for significant growth.
Despite experiencing lackluster performance in recent years due to its heavy reliance on Apple as its biggest customer, Skyworks could experience a turnaround driven by the adoption of generative AI-enabled smartphones. Market research firms project a strong growth trajectory for the generative AI smartphone market, with estimates of sales reaching 100 million units this year and increasing to 522 million units by 2027. This presents a massive opportunity for Skyworks, considering its close relationship with Apple.
As the leading global smartphone original equipment manufacturer (OEM) with a market share of 20.1% last year, Apple is in a strong position to capitalize on the growing demand for generative AI smartphones. If Apple manages to increase its market share to 25% through the integration of AI features into its upcoming iPhones, its annual shipments could jump to 460 million units by 2027.
This bodes well for Skyworks, which could ride the coattails of its largest client and return to growth. Analysts anticipate a turnaround for Skyworks, with revenue projected to start growing from fiscal 2025, followed by an acceleration in fiscal 2026. This improvement in performance is expected to drive stronger earnings growth as well.
Based on a five-year average earnings multiple of 19, if Skyworks achieves the projected earnings-per-share estimate of $9.96 in 2026, its stock price could jump to $189, representing an 87% increase from current levels. With Skyworks presently trading at just 18 times earnings, savvy investors may consider seizing the potential AI winner before it takes off.
In conclusion, while Nvidia has been the favored choice for investors seeking exposure to the AI market, Skyworks Solutions presents a much cheaper alternative. The adoption of generative AI-enabled smartphones, combined with Skyworks’ close relationship with Apple, could lead to a turnaround in its fortunes. Analysts anticipate revenue growth starting from fiscal 2025, driving stronger earnings growth subsequently. With the stock presently trading at an attractive valuation, investors may find an excellent opportunity to benefit from the potential AI growth.
