After delivering outstanding growth in 2023, semiconductor stocks have continued their impressive run this year as well, which is evident from the 12% gains clocked by the PHLX Semiconductor Sector index as of this writing. However, certain chip stocks have been left behind while the broader market has rallied impressively.
Shares of Skyworks Solutions (NASDAQ: SWKS) and Qorvo (NASDAQ: QRVO), two chipmakers that are known for supplying chips for Apple, have underperformed the semiconductor sector in 2024. Skyworks stock is down nearly 11% so far this year, while Qorvo has fallen 2%.
Potential Reinvigoration Through AI in Smartphone Market
A big reason behind their underperformance is the weak performance of the smartphone market over the past couple of years. Both companies get a nice chunk of their revenue from selling smartphone chips, which explains why their top lines have been shrinking since the beginning of 2022.
However, the rough times that Skyworks and Qorvo have been facing could soon come to an end thanks to artificial intelligence (AI). Let’s look at how this fast-growing technology could give these companies a nice boost.
Revival of Smartphone Sales Riding on AI Capabilities
According to market research firm IDC, global smartphone shipments fell 11.3% in 2022. This was followed by a 3% drop in 2023. The good news for smartphone original equipment manufacturers (OEMs) and chipmakers such as Qorvo and Skyworks is that the market has started growing once again. IDC estimates that global smartphone shipments grew nearly 8% year over year in the first quarter of 2024.
More importantly, the smartphone market is expected to grow 4% in 2024, followed by further growth in shipments over the next three years. The AI factor indicates that the market’s recovery could be quicker. Sales of AI-capable smartphones are expected to account for 5% of the overall market this year, compared to just 1% in 2023.
That indicates an estimated 59 million AI smartphones could be shipped in 2024 based on Canalys’ overall smartphone shipment forecast. The forecast says that AI-enabled smartphones could account for 45% of the global smartphone market in 2027.
AI Integration and Potential Growth Prospects
Even then, there would be a lot of room for sales of AI-capable smartphones to grow. J.P. Morgan analyst Samik Chatterjee points out that the advent of AI could drive a 5G-like upgrade cycle for smartphones. Skyworks and Qorvo were enjoying healthy growth when the demand for 5G smartphones was booming.
Given that their customers have been quick to integrate AI-focused tools into their products, there is a good chance that Skyworks and Qorvo could start growing at a nice pace once again.
Financial Outlook and Investment Opportunity
Both Skyworks and Qorvo are expected to deliver an ordinary financial performance in their current fiscal years. Skyworks’ revenue is expected to drop 6.7% in the ongoing fiscal year, while earnings could shrink 19%. However, in fiscal 2025, analysts are projecting a 7.4% increase in revenue along with an 18% jump in earnings.
Similarly, Qorvo could clock 10% revenue growth in fiscal 2025 following a 5% increase in the current one. Moreover, its earnings growth is also expected to accelerate next year.
Investors looking for beaten-down stocks that could take advantage of the proliferation of AI should consider both Qorvo and Skyworks Solutions as a potential improvement in their earnings power could send them on a bull run.
Opportunity Amidst Challenges
Before you buy stock in Skyworks Solutions, consider the broader market conditions and the potential held by AI integration in the smartphone market. A strategic investment could yield promising returns as AI reshapes the industry landscape.
