Semtech Stock Climbs as AI Boom Drives Turnaround Success

Semtech Co. (NASDAQ: SMTC) makes analog and mixed-signal chips that enable optical data transmission, sensing, and advanced high-speed connectivity solutions. Its products are used in consumer electronics, infrastructure, industrial applications, data centers, and Internet of Things (IoT) systems. The company’s turnaround is impressive as its revenue has returned to growth since its fiscal first quarter of 2025, with its recent FQ3 YoY revenues rising 18%. The computer and technology sector company supplies its products to Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NASDAQ: AMZN), QUALCOMM Inc. (NASDAQ: QCOM) and Intel Co. (NASDAQ: INTC).

Semtech is benefiting from the robust demand in artificial intelligence (AI) applications, data centers, and IoT, which is driving its turnaround despite tough competition from the likes of Texas Instruments Inc. (NASDAQ: TXN), Broadcom Inc. (NASDAQ: AVGO) and Microchip Technology Inc. (NASDAQ: MCHP).

The Turnaround Is Underway as Semtech Returns to Growth in FQ3

Semtech's revenues have been on a steady rise since bottoming in its FQ1 2025, down 13% YoY, followed by FQ2, improving to down 10% YoY. FQ3 was the inflection quarter as revenues turned positive, growing 18% YoY, with Q4 estimates pointing at 30% YoY growth. Its FQ3 EPS beat consensus estimates by 3 cents, coming in at 23 cents. Its revenue rose 18% YoY and 10% sequentially to $236.8 million, nicely beating consensus estimates for $232.89 million. Data center revenue surged 78% YoY and 58% sequentially to a record $43.1 million. Non-GAAP gross margin grew 200 bps to 52.4%. Non-GAAP operating margin rose 410 bps to 18.3%.

Revenue Breakdown by End Market and Segment

The majority of FQ3 revenue, or 53% at $131 million, was derived from the Industrial end market, which includes IoT, radio frequency industrial, circuit protection, and long-range (Lo-Ra) enabled solutions. The Infrastructure end market generated 28% or $65.8 million in revenue, representing the data center revenues and shipments of its CopperEdge used in 1.6T active cable copper.

The High-End Consumer end market generated 17% of total revenue or $40 million. These revenues include consumer circuit protection and PerSe proximity sensing solutions. Analog mixed signal and wireless and IoT systems and connectivity segments generated 35% of revenues each, and signal integrity generated 30% in FQ3 2025.

Semtech Guides Higher FQ4 Top and Bottom Line Forecasts

The company issued upside EPS of 29 cents to 35 cents for the fiscal fourth quarter of 2025 versus 27 cents consensus estimates. Semtech forecasts revenues of $245 million to $255 million versus $242.03 million consensus estimates. Non-GAAP gross margin is expected between 52.3 and 53.3% and non-GAAP operating margin between 19% to 20.4%.

Semtech CEO Hong Hu was upbeat, commenting, "We are very pleased to report broad-based growth across each of our end markets, and particularly in the data center, where we project AI-driven product demand to be a long-term and transformational growth engine for Semtech. Our results validate that our customers and target markets are moving toward us and highlight the effectiveness of our initiatives to drive market share gain and SAM expansion."

SMTC Attempts a Bull Flag Breakout

A bull flag pattern is comprised of two parts. First, the underlying stock forms the flagpole, which is a steep run-up in the stock price, usually at a 45-degree or higher angle. The flagpole completes when the stock forms its peak. The flag is formed on the parallel descending trendlines comprised of lower highs and lower lows. The bull flag triggers when the stock surges through its upper descending trendline and past the peak of the flagpole.

SMTC surged on a gap to $70.27 on its FQ3 2025 earnings release to complete the flagpole. The parallel descending trendlines formed the flag, which bottomed at $61.40. The bull flag attempt triggered the breakout through $64.99, but the 0.618 Fib resistance at $68.68 capped its bounce. SMTC will need to break through the flagpole peak at $70.27 to complete the bull flag breakout. The daily anchored VWAP is slowly rising at $61.13. The daily RSI is flat at the 64-band. Fibonacci (Fib) pullback support levels are at $62.39, $57.61, $53.64, and $50.61.

SMTC’s average consensus price target is $68.70, implying a 5.45% upside and its highest analyst price target sits at $85.00. Ten analysts rate the stock as a Buy, while two assign a Hold rating. The stock has a 9.71% short interest.

Actionable Options Strategies: Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip on SMTC. If assigned the shares, writing covered calls at upside Fib levels executes a wheel strategy for income.

The article "Semtech Stock Climbs as AI Boom Drives Turnaround Success" first appeared on MarketBeat.