Rating Upgrade and Target
Northland Capital Markets upgraded Semtech (NASDAQ:SMTC) to Outperform and set a price target of $182 per share, citing the company's growing role in connectivity solutions that are becoming the bottleneck for artificial intelligence performance.
AI Connectivity Focus
Analyst Gus Richard noted that connectivity, both copper and optical, is the current AI bottleneck, positioning Semtech to capture market share. Data‑center revenue now represents 30% of Semtech’s total revenue and is projected to increase to 44% by the end of 2027, which is expected to lift gross margins into the mid‑60% range.
Financial Performance Q2
Semtech reported second‑quarter non‑GAAP earnings of $0.71 per share on revenue of $342 million, surpassing consensus estimates of $0.61 per share and $328 million revenue. Non‑GAAP gross margin was 54.5%; when excluding the business held for sale, the margin would have been 59.7%, an improvement of 520 basis points sequentially.
Cash balances rose by $41 million to $204 million, while inventory declined by $34 million. Infrastructure sales increased 25% sequentially and 69% year‑over‑year to $124 million. Data‑center revenue reached a record $100 million, up 91% year‑over‑year, driven by 800 Gbps, 1.6 Tbps CopperEdge and the early ramp of 1.6 Tbps FiberEdge products.
Product and Market Outlook
Northland highlighted that the FiberEdge technology is integrated into every module provider targeting the data‑center market and is expected to achieve more than 50% market share by the end of fiscal 2027. The company’s mix shift, supported by LoRa offerings and the divestiture of its cellular module business, is contributing to the anticipated margin expansion.