Northland lifts Semtech rating, sees connectivity as the AI bottleneck

Investing.com -- Northland Capital Markets upgraded Semtech (NASDAQ: SMTC) to Outperform with a $182 price target in a note Thursday, arguing that the chip firm is gaining share in a part of the AI stack that is now constraining performance.

"We believe that connectivity is currently the AI bottleneck in terms of power and performance, benefiting SMTC as it gains market share in both copper and optical connectivity," analyst Gus Richard wrote.

Richard notes that data center revenue now accounts for 30% of the total, and Northland expects that to reach 44% by the end of 2027. Together with LoRa and the divestiture of the cellular module business, the firm said that mix shift is driving gross margin into the mid-60% range.

Semtech reported second-quarter non-GAAP earnings of $0.71 per share on revenue of $342 million, ahead of consensus of $0.61 on $328 million. Non-GAAP gross margin was 54.5%, though excluding the business held for sale it would have been 59.7%, up 520 basis points sequentially. Cash rose $41 million to $204 million, while inventory fell $34 million.

Infrastructure sales climbed 25% sequentially and 69% year over year to $124 million, with data center revenue hitting a record $100 million, up 91% from a year earlier on 800G, 1.6T CopperEdge and the early ramp of 1.6T FiberEdge.

Northland said FiberEdge is designed into every module provider targeting the data center market and should exceed 50% share by the end of fiscal 2027.

You May Also Be Interested In

• Dell’s earning report was bullish for Intel CPU demand, analyst says
• Lynx Equity sees Micron and SanDisk breakout as volatility normalizes
• AMC CEO threatens SEC complaint over Robinhood tokens