Skyworks Solutions Inc. (NASDAQ: SWKS) is down 16% in 2025, lagging many technology stocks. The company produces analog semiconductors, and its core business is radio frequency (RF) components for wireless communications.
That provides a predictable revenue stream, particularly when the company generates 50% of its revenue from Apple Inc. (NASDAQ: AAPL). However, that also explains why SWKS stock is down in 2025. It’s becoming difficult for even a company like Apple to deny that consumers are holding off on upgrading their smartphones.
Analysts expect Skyworks' earnings per share (EPS) to be down approximately 22% in the next 12 months. With forward earnings around 20x, the PEG (price/earnings plus growth) ratio for the stock is 1.8x, which signals it is overvalued.
However, an 8% rally in SWKS stock in the last three months suggests that investors may be looking to the future, which could turn the fundamental case on its head.
Skyworks Is the Right Company as AI Shifts to the Edge
One of the next big stages of the AI revolution is the movement of AI capabilities to the edge (i.e., local devices that process data independently). These include smartphones, smart home devices, infotainment systems—essentially anything that is part of the Internet of Things (IoT).
But there’s a broader market for drones, industrial sensors, wearable health monitors (e.g., an Apple Watch) and more. These devices share the following must-have capabilities that fit with Skyworks's products.
They must:
- Always be connected
- Handle high-bandwidth data transfer
- Use low-latency, high-performance RF components
In short, Skyworks supplies the chips that make that connectivity possible.
Lower Interest Rates Could Stimulate a Refresh Cycle
In addition to AI on the edge, Skyworks may have a more general macroeconomic catalyst. If the Federal Reserve lowers interest rates as expected in the second half of the year, it could spark a rejuvenation of the refresh cycle for smartphones.
This would be important for the iPhone. However, Skyworks has contracts with other premium Android smartphone manufacturers, including the Samsung Galaxy, Google Pixel, and Oppo.
More Demand Could Flip the Earnings Story
Analysts are buying this growth story. They are looking beyond 2025 and seeing EPS growth moving from $9.75 to $11.25, an increase of around 15%. However, some analysts believe that in the next three to five years, Skyworks could post EPS growth of around 22%.
If that plays out and SWKS stock returns to around $110, its forward P/E would fall to roughly 11x. More importantly, its PEG ratio would drop to around 0.5, which would be a strong signal that the stock is undervalued relative to its growth.
A Solid Total Return Opportunity
With upside like that, investors can then focus on the company’s minimal debt and strong free cash flow (FCF) margin of around 25%.
That means that at its current price, investors are pricing in most of the downside of this current smartphone cycle.
Investors who buy today can also be rewarded with a dividend that yields 3.76%, which has increased for 11 consecutive years.
When you add in share repurchases, Skyworks has returned over $3 billion in capital to shareholders in the last five years.
This consistent capital return strategy underscores management’s confidence in the company’s long-term fundamentals and its ability to generate excess cash, even in volatile market conditions.
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