Skyworks Solutions (NASDAQ: SWKS) has seen a 16% drop in its stock in 2025, attributed to a slowdown in smartphone upgrades. Despite its primary business in radio frequency components for wireless communications, the company faces challenges due to Apple's revenue contribution, which makes up 50% of its total income. Analysts forecast a 22% decline in earnings per share (EPS) over the next year.

The company's stock is viewed as overvalued with a PEG ratio of 1.8x, though an 8% rally over the last three months indicates investor optimism about future prospects. One key area of potential growth for Skyworks is its involvement in AI and edge computing. The rise of AI capabilities on local devices such as smartphones and IoT gadgets offers a promising market for its products.

Skyworks could benefit from potential interest rate cuts by the Federal Reserve, potentially rejuvenating smartphone refresh cycles. Besides Apple, Skyworks works with other premium smartphone brands like Samsung Galaxy and Google Pixel, which could further bolster its market position.

Analysts are optimistic about Skyworks' growth story, projecting EPS growth to reach $11.25, a 15% increase, and potentially 22% over three to five years. If these forecasts hold true, the stock's forward P/E ratio may decrease significantly, marking it as undervalued in relation to growth potential.

The company is also positioned well financially with minimal debt and a 25% free cash flow margin. Investors can also benefit from a steady dividend yield of 3.76%, which has been growing for 11 years. Share buybacks have led to a return of over $3 billion to shareholders, highlighting management’s confidence in long-term growth.

With fluctuating market conditions and high valuations in recent years, Skyworks represents potential value for investors interested in technology and AI advancements. Its strategic focus on AI, coupled with solid financial health and a history of capital returns, makes it a noteworthy candidate for future investments.