This 16x Earnings Semiconductor Stock Has Overlooked AI Exposure

This 16x Earnings Semiconductor Stock Has Overlooked AI Exposure

The earliest gains in the AI cycle accrued to the companies at its center.

Nvidia (NVDA) and Broadcom (AVGO) led the initial part of the AI wave driven by demand for raw compute. Then the re-rating broadened, and smarter money looked one layer down the stack. Marvell (MRVL) caught up on its interconnect story. Intel (INTC) found fresh legs. This is how these cycles work. The wave moves outward from the core. So what could be next?

Investors searching for the next AI beneficiaries may need to look beyond accelerators and networking chips toward the companies that enable connectivity across the broader ecosystem.

Skyworks Solutions

Skyworks (SWKS) has gained just about 13% over the past year, a period over which the S&P 500 rose roughly 28% and the broader semiconductor sector ran far ahead of it. The stock still sits about 55% below its 2021 highs. The reason is no mystery. The broader smartphone slowdown has dragged on its mobile business, while the AI trade has rewarded almost everyone else in chips. The company's large reliance on Apple for revenue has also been a factor.

The stock trades at roughly 16x forward earnings with a dividend yield of about 4%, undemanding pricing in today's semiconductor market. You are largely paying for the existing business, but we think there could be AI and connectivity upside thrown in as well.

That combination is relatively rare in semiconductors today. Many AI-linked names already trade at valuations that assume years of strong execution, while Skyworks still carries the valuation profile of a mature smartphone supplier despite growing exposure to AI, automotive, industrial, and networking markets.

Data Center Timing Chips

This is the most direct AI link and the most overlooked. AI data centers shuttle huge volumes of data between chips at extreme speeds, and that traffic has to stay perfectly synchronized or bits get lost. Skyworks recently launched a line of ultra-precise "timing" chips built for the fastest optical networking gear inside these facilities. ^[1] It taps the same high-speed interconnect demand driving Marvell and Broadcom, just one layer down.

To be sure, this is a much smaller market than interconnects and accelerators, so it is a high-margin niche rather than a Broadcom-sized engine. Even so, it proves that Skyworks has some real, differentiated data center technology that could eventually pick up steam.

Edge And Hybrid AI Connectivity

This is where the bulk of the AI thesis is. Every AI-capable device will require more sophisticated wireless than its predecessor, including faster WiFi, always-on voice, and real-time data links, across smartphones, laptops, vehicles, and factory sensors. Skyworks makes the radio frequency components that enable much of this. Its Broad Markets segment (automotive, industrial, IoT) grew 11% year over year last quarter, and the pending Qorvo merger would build a larger, more diversified RF supplier.

Management frames the long-term setup as more endpoints, more content per device, AI at the edge, and exposure to growth areas like data centers, WiFi, and satellites.

The Near-Term Catch

The picture is mixed over the near term. Most recent-quarter revenue was $943.7 million, down 1% year over year, weighed down by the smartphone slowdown still pressuring the mobile segment. Management's third-quarter guidance reflects more of the same, with revenue of $900 million to $950 million and mobile expected to decline sequentially on normal seasonality.

Still, the company's low valuation relative to the broader semiconductor space and improving technical capabilities could set it up for a re-rating. If investors begin looking beyond AI compute and networking leaders toward the broader ecosystem of connectivity and infrastructure suppliers, Skyworks could benefit from a second wave of AI-related capital flows.

Whether Skyworks is next in line or not, leaning too hard on a single semiconductor stock to call the move is a fragile way to play a broad cycle. The Trefis High Quality (HQ) Portfolio takes the other side of that bet: 30 quality names, sized and re-balanced with discipline, and a track record of outpacing the S&P 500, S&P Mid-cap, and Russell 2000. When it comes to protecting and growing wealth over the long term, a disciplined portfolio approach pays much better than concentrated single stock bets.

1. Skyworks [↩]