Semtech Rallies on Earnings Beat—Is There More Upside?

Key Points

• Shares of mid-cap chip stock Semtech have recovered moderately since their disastrous fall in early February.
• The company's better-than-expected earnings report provided a respite after its NVIDIA-related crash.
• Is Semtech getting ready to have its rebound in full gear, or is more evidence needed to make this so?

After experiencing a wave of concern and a huge drop in its stock, semiconductor company Semtech NASDAQ: SMTC recently revealed some much-needed good news.

Semtech shares sold off over 31% in one day in early February, around 10 days before the broad selloff in the technology sector began. Semtech’s large drop was due to a significant near-term reduction in a much hoped-for relationship with NVIDIA NASDAQ: NVDA.

However, on Mar. 13, the company released its latest financial results, giving the market a positive surprise. Shares jumped 21% after the results, helping stem the stock's pernicious slide. Although, as of the Mar. 18 close, Semtech shares are still trading 50% below their 52-week high. So, is Semtech poised to continue its rebound, or does this stock still have a long way to go?

Breaking Down SMTC’s Strong Earnings and Financial Progress

Semtech handily beat estimates on adjusted earnings per share (EPS) and exceeded revenue expectations. The company’s adjusted EPS came in at $0.40 per share, 25% higher than the $0.32 analysts forecasted. Sales were $251 million, nearly $2 million higher than anticipated. Sales guidance for fiscal Q1 2026 was slightly below expectations.

However, the company’s adjusted EPS guidance was almost 9% higher than expected at the midpoint. The company’s fiscal year is one year ahead of the calendar year, so this guidance corresponds to its next quarterly results.

Overall, fiscal 2025 was a very good year for Semtech in many respects. Although the firm’s full-year sales growth was nothing incredible, at just 5%, growth picked up in a big way in Q4, rising nearly 30% from the prior-year quarter. Profitability gains were a big win for Semtech. Its adjusted gross margin increased by 430 basis points in Q4 from the prior-year quarter, and its adjusted operating margin increased by over 1000 basis points.

Remove Ads

Additionally, its key LoRa-enabled solutions saw sales grow by 205%, and sales to data centers in its infrastructure segment grew by 183%. Furthermore, the company shored up its balance sheet considerably, lowering its overall debt by 68% since the end of last year.

Semtech’s CopperEdge Expansion: Connecting More Than Just Data Centers

Addressing concerns related to Semtech’s CopperEdge products is key to understanding its path forward. The company was planning to see significant revenue from these products in fiscal 2026 due to a partnership with NVIDIA. A significant reduction in that partnership led to the massive sell-off discussed above.

Semtech provided encouraging news regarding its CopperEdge portfolio. Even with the NVIDIA setback, the company is talking to over 20 potential customers for CopperEdge. These include hyperscalers, switch makers, and data center cable suppliers. CopperEdge is a semiconductor used to enhance the signal integrity of active copper cables (ACC).

These cables can provide many benefits over traditional copper cables. This includes the ability to maintain high-bandwidth signal quality while being much longer. This allows for more flexible connectivity between data center servers. CopperEdge essentially magnifies the signal transferred through ACCs, allowing this extended length to occur. The company is also expanding its CopperEdge offerings to connect components within each server as well.

The company expects demand for CopperEdge from its anchor customer, NVIDIA, to lag previous estimates for the next three to four quarters. This means that the demand is still there, but the timeline for receiving orders has been significantly extended. The company still expects NVIDIA to use CopperEdge in its future-generation server rack designs. Additionally, the firm could still pick up other customers in the meantime.

SMTC: Past Developments Show Encouraging Signs, But It's Not Out of the Water

Overall, Semtech looks like it has a significant opportunity to rebound closer to its past highs, but this may take a substantial amount of time. The fact that NVIDIA wanted to have CopperEdge as part of its product in the first place shows the company's technological prowess in this space.

However, the resumption of that relationship in future rack generations still needs to come to fruition.

Still, the company looks to have a big opportunity in this technology as data center size and speed needs increase. The impressive financial progress Semtech made in 2024 demonstrates its ability to drive efficiency. This is a positive sign for the future.

Reducing debt also gives the firm more financial flexibility for differentiated investments. Five analysts tracked by MarketBeat placed an average price target of $58 after earnings, which implies just over 50% upside from the stock’s Mar. 18 closing price.