Semtech Stock Rises Amid AI-Driven Turnaround Success

Semtech Co. (NASDAQ: SMTC) manufactures analog and mixed-signal chips used for optical data transmission, sensing, and high-speed connectivity solutions. Its products are integrated into consumer electronics, infrastructure, industrial applications, data centers, and Internet of Things (IoT) systems. The company has recently seen a strong recovery, with revenue growth beginning in the fiscal first quarter of 2025. In the latest fiscal quarter, FQ3, revenue increased by 18% year-over-year. Semtech supplies to major companies like Apple Inc. (NASDAQ: AAPL), Amazon.com Inc. (NASDAQ: AMZN), QUALCOMM Inc. (NASDAQ: QCOM), and Intel Co. (NASDAQ: INTC).

The company is thriving due to high demand in areas like artificial intelligence (AI), data centers, and IoT, despite facing competition from companies such as 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 has been experiencing steady revenue growth since its fiscal first quarter of 2025, which had a 13% year-over-year decline. FQ2 showed improvement with a 10% year-over-year decline, and FQ3 marked a positive turn with an 18% year-over-year revenue increase. For FQ4, revenue growth is estimated at 30% year-over-year. In FQ3, earnings per share exceeded expectations by 3 cents, reaching 23 cents. Revenue rose by 18% year-over-year and 10% sequentially to $236.8 million, surpassing the consensus estimate of $232.89 million. Data center revenue reached a record $43.1 million, a 78% year-over-year increase and a 58% sequential rise. The non-GAAP gross margin increased by 200 basis points to 52.4%, and the non-GAAP operating margin rose by 410 basis points to 18.3%.

Revenue Breakdown by End Market and Segment

In FQ3, 53% of revenue, amounting to $131 million, came from the Industrial end market, encompassing IoT, radio frequency industrial, circuit protection, and long-range (Lo-Ra) solutions. The Infrastructure end market contributed 28% or $65.8 million, which includes data center revenues and shipments of CopperEdge for 1.6T active cable copper. The High-End Consumer market accounted for 17% of total revenue or $40 million, covering consumer circuit protection and PerSe proximity sensing solutions. Both the analog mixed signal and wireless and IoT systems and connectivity segments represented 35% of revenues each, while signal integrity contributed 30% in FQ3 2025.

Semtech Guides Higher FQ4 Top and Bottom Line Forecasts

The company projects earnings per share between 29 cents and 35 cents for fiscal Q4 2025, surpassing the consensus estimate of 27 cents. It anticipates revenue between $245 million and $255 million, compared to the consensus estimate of $242.03 million. Non-GAAP gross margin is expected to range from 52.3% to 53.3%, and non-GAAP operating margin from 19% to 20.4%.

Semtech CEO Hong Hu expressed optimism, stating, “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 consists of two parts. Initially, the stock forms a flagpole, characterized by a steep price increase, typically at a 45-degree angle or higher. The flagpole is complete when the stock reaches its peak. The flag is formed by parallel descending trendlines with lower highs and lower lows. The bull flag is triggered when the stock breaks through its upper descending trendline and surpasses the flagpole peak.

SMTC spiked to $70.27 after its FQ3 2025 earnings release, completing the flagpole. The parallel descending trendlines formed the flag, bottoming at $61.40. The breakout attempt through $64.99 initiated the bull flag breakout, but resistance at the 0.618 Fibonacci level at $68.68 limited its rise. To complete the bull flag breakout, SMTC needs to surpass the flagpole peak at $70.27. The daily anchored VWAP is gradually rising at $61.13, and the daily RSI is stable 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, indicating a 5.45% upside, with the highest analyst price target at $85.00. Ten analysts rate the stock as a Buy, while two give it 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.

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