Semtech Corporation (SMTC): A Bull Case Theory

We came across a bullish thesis on Semtech Corporation on TechIt_alt’s Substack. In this article, we will summarize the bulls’ thesis on SMTC. Semtech Corporation's share was trading at $58.09 as of August 29^th. SMTC’s trailing and forward P/E were 92.21 and 34.97 respectively according to Yahoo Finance.

Semtech Corporation (NASDAQ: SMTC) delivered a strong quarter, surpassing revenue and EPS expectations, with Q2 revenue of $257.6 million, up 20% year-over-year, slightly above analyst estimates. Non-GAAP margins rose to 53.2%, reflecting operational efficiency, while GAAP results were impacted by a $42 million goodwill impairment, resulting in a $16.2 million operating loss. Adjusted operating margins remained healthy at 18.8%, and EPS losses of -$0.31 beat projections, marking a sharp improvement from last year. Management expects continued momentum in Q3, with revenue around $266 million, operating margins near 19.6%, and EPS projected at $0.44, signaling confidence in growth and efficiency.

Semtech’s data center segment emerged as a key growth driver, posting a 92% year-over-year increase and accounting for 36% of the signal integrity division’s revenue. Unlike cyclical IoT products, this business benefits from hyperscaler capital spending, driven by AI infrastructure investments from AWS, Microsoft, Google, and Alibaba. Central to this growth is Semtech’s Linear Pluggable Optics (LPO), which reduces latency, power consumption, and deployment costs while enabling 800G and 1.6T interconnect speeds for AI workloads. LPO design wins are in place, with revenue expected to begin in Q4 2026 and scale from $50 million to a multi-hundred-million-dollar business.

Complementing LPO, CopperEdge active copper cables expand shorter-range connectivity, supporting up to 5–7 meters with high signal integrity. With roughly 20 active hyperscaler engagements and 100G–200G launches expected in 2026, Semtech is positioned to capture a meaningful share of hyperscaler spending across optical and copper solutions. Analysts remain bullish, citing strong data center growth, improving margins, and innovative products, while management continues to focus on growth, debt reduction, and acquisition integration, setting the stage for sustained momentum into 2026.

Previously we covered a bullish thesis on Credo Technology Group Holding Ltd (CRDO) by Nikhs in March 2025, highlighting its rise as an AI infrastructure leader through Active Electrical Cables, strong Q3 revenue growth, and a system-level competitive moat. The stock has appreciated approximately 164% since coverage. The thesis still stands as growth continues. TechIt_alt shares a similar perspective but emphasizes Semtech’s data center expansion via Linear Pluggable Optics and CopperEdge solutions.

Semtech Corporation is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 40 hedge fund portfolios held SMTC at the end of the first quarter which was 57 in the previous quarter. While we acknowledge the potential of SMTC as an investment, we believe certain AI stocks offer greater upside potential and carry less downside risk. If you're looking for an extremely undervalued AI stock that also stands to benefit significantly from Trump-era tariffs and the onshoring trend, see our free report on the best short-term AI stock.

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Disclosure: None.