Semtech Shares Surge as Data-Center Demand Lifts Q3 Outlook Well Past Estimates — BigGo Finance

Semtech Corp. shares rallied in premarket trading Wednesday after the chipmaker reported fiscal second-quarter results that beat Wall Street forecasts and issued third-quarter guidance far above expectations, driven by surging demand from data-center customers.

The Camarillo, California-based company posted revenue of $341.9 million for the quarter, up 32.7% from a year earlier and ahead of the $328.67 million consensus estimate. Adjusted earnings per share came in at $0.71, exceeding the $0.61 analysts had projected and up sharply from $0.41 in the same period last year. The stock climbed more than 10% in premarket action, extending a year-to-date rally of roughly 73%.

“The Semtech team executed exceptionally well, delivering record revenue across our key focus areas, earnings leverage that continued to outpace revenue growth and significant progress on portfolio optimization,” Hong Hou, president and chief executive officer, said in a statement. “Accelerating bookings and record backlog point to a strong inflection in growth with new revenue drivers and visibility expected to extend well into next fiscal year.”

The company’s forward outlook stole the spotlight. Management guided third-quarter revenue to a range of $405 million to $415 million, well above the $359.9 million analysts had been modeling. Adjusted EPS guidance of $1.02 to $1.08 also dwarfed the $0.73 consensus. Semtech expects adjusted operating margin of 31%, plus or minus 60 basis points, and adjusted EBITDA of approximately $134 million.

Data-Center Momentum Drives Growth

The data-center segment has become Semtech’s primary growth engine. Infrastructure sales jumped 69% year over year to $124 million, led by record data-center revenue of $100 million, up 91% from a year earlier on strong demand for 800G products. Industrial sales rose 25% to $179 million, with LoRa-enabled sales climbing 58% to a record $58 million. IoT Systems and Connectivity revenue increased 11% both sequentially and year over year to $98 million.

Semtech expects data-center revenue to rise 45% sequentially in the third quarter and roughly 160% year over year. LoRa revenue is projected to reach another record, increasing about 15% sequentially and 65% from a year earlier.

Adjusted gross margin expanded 150 basis points sequentially to 54.5%. Adjusted EBITDA increased to $91.1 million from $56.5 million a year earlier, with the adjusted EBITDA margin improving to 26.6% from 21.9%. Operating cash flow rose 55% to $69 million, while free cash flow increased 48% to $61 million. The company ended the quarter with $204 million in cash and $503 million in debt.

Portfolio Shift Toward Higher-Margin Segments

Semtech is divesting its cellular module business to concentrate on higher-margin data-center and LoRa opportunities. The transaction is expected to close in the fourth quarter and remain neutral to adjusted earnings. UBS analysts noted that data-center expansion should easily compensate for any revenue decline from the divestiture while supporting improved profit margins.

The company also said it expects its FiberEdge market share to exceed 50% by the end of fiscal 2027 and plans to begin generating revenue from high-power continuous-wave laser transceivers during the first half of fiscal 2028.

Analysts Raise Price Targets

Several Wall Street firms lifted their price objectives following the report. Timothy Arcuri at UBS raised his target to $230 from $225 while reaffirming a Buy rating, highlighting 160%+ year-over-year growth in data-center revenue and sustained strength in the LoRa portfolio. He projects data-center revenue could surpass $200 million quarterly by the first quarter of fiscal 2028.

Scott Searle at Roth MKM elevated his target to $220 from $190, maintaining a Buy stance. He anticipates the data-center and LoRa divisions to expand 120% year-over-year during the third quarter and represent close to 60% of overall revenue.

Benchmark preserved its Buy recommendation with a $230 price objective, while Needham retained its Buy rating at $200. Stifel maintained its Buy position with a $188 target.

Morgan Stanley’s Joseph Moore took a more reserved approach, raising his price objective to $195 from $175 while keeping a Hold rating. He recognized robust demand for Semtech’s optical solutions and accelerating data-center revenue performance, noting the next growth wave will likely emerge from active copper cable products ramping during the fourth quarter and expanded data-center opportunities extending through fiscal 2028.

Note: Price targets reflect analyst actions following Semtech’s fiscal Q2 2027 earnings report.

Semtech carries a Strong Buy consensus rating based on 11 Buy recommendations and one Hold. The average price target of $204 implies nearly 60% upside potential from current trading levels. Accelerated FiberEdge qualification timelines are seen as a primary near-term catalyst, with CopperEdge products representing another significant opportunity approaching fiscal 2028.

Morgan Stanley analysts said the quarter was “strong, driven by accelerating optical demand, a meaningful 1.6 terabit ramp and continued long-range strength,” with margins improving rapidly on favorable mix. They said they are watching the next leg of growth as active copper cable ramps in the fourth quarter and broader data-center opportunities build into fiscal 2028.

The results mark Semtech’s tenth consecutive quarter of revenue growth, underscoring the company’s successful pivot from its legacy connectivity business toward high-performance computing infrastructure. With record backlog and accelerating bookings, management said visibility now extends well into the next fiscal year.

For investors, the key question is whether Semtech can sustain its momentum as hyperscale cloud providers continue their aggressive capital expenditure cycles. The company’s ability to capture share in the 800G optical market and its emerging position in active copper cables position it squarely at the center of the artificial intelligence infrastructure buildout. The pending divestiture of the cellular module business removes a lower-margin distraction, potentially enabling further margin expansion as data-center revenue scales.