Northland Capital Markets upgraded Semtech Corp. to Outperform from its previous rating on Thursday, citing the company’s expanding role in addressing AI infrastructure bottlenecks through high-speed connectivity solutions.
Analyst Gus Richard highlighted Semtech’s position in both copper and optical connectivity as a strategic advantage, noting that connectivity is increasingly becoming the primary constraint in AI power and performance efficiency. The upgrade comes alongside a price target of $182, reflecting expectations for sustained demand in data center infrastructure.
Semtech reported second-quarter non-GAAP earnings per share of $0.71, exceeding consensus estimates of $0.61, and revenue of $342 million, ahead of the $328 million forecast. Non-GAAP gross margin reached 54.5%, or 59.7% excluding assets held for sale, representing a 520-basis-point sequential increase. Cash on the balance sheet rose by $41 million to $204 million, while inventory declined by $34 million.
Infrastructure sales grew 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. The company attributed the surge to demand for its 800G, 1.6T CopperEdge, and early-stage 1.6T FiberEdge solutions. Data center revenue now accounts for 30% of total sales and is projected to reach 44% by the end of 2027.
Northland also noted that Semtech’s FiberEdge technology is integrated into every major module provider targeting the data center market, with expectations that it will capture over 50% market share by fiscal 2027. The analyst emphasized that the company’s gross margins are benefiting from a mix shift driven by data center growth, LoRa adoption, and the divestiture of its cellular module business, pushing margins into the mid-60% range.
