On Monday, Morgan Stanley initiated coverage on Semtech Corp . (NASDAQ:SMTC) with an Equalweight rating and set a price target of $30.00. The firm highlighted several challenges that Semtech has faced, including issues stemming from its acquisition of Sierra Wireless (NASDAQ:SWIR), a shift in management, and unfulfilled expectations regarding a data center contract. According to InvestingPro data, the company’s current stock price of $28.01 appears undervalued compared to analyst targets ranging from $48 to $68, despite recent operational challenges.
Semtech’s stock has been under pressure due to these factors, as well as the broader economic headwinds affecting the technology sector. The stock has declined 35.4% over the past six months and currently trades at an EV/EBITDA multiple of 26.48x. According to Morgan Stanley, Semtech’s difficulties have led to its shares trading at a discount compared to other companies in the data center space, both large and small caps, such as Broadcom Inc. (NASDAQ:AVGO) and Marvell Technology Group Ltd . (NASDAQ:MRVL). InvestingPro analysis reveals 14 additional key insights about Semtech’s financial health and market position.
Despite the challenges, Morgan Stanley noted that the market might not be fully appreciating Semtech’s potential in the data center market. Data center-related sales are projected to account for 16% of Semtech’s business in calendar year 2024. The firm believes that Semtech’s emerging data center opportunities could be undervalued. This view is supported by the company’s revenue growth of 4.67% in the last twelve months, reaching $909.29 million. Nine analysts have recently revised their earnings estimates upward for the upcoming period, as reported by InvestingPro.
Morgan Stanley also pointed out that Semtech’s diverse portfolio, which includes Internet of Things (IoT) and consumer semiconductor products, is subject to the current volatile macroeconomic conditions. The impact of newly introduced tariffs is expected to affect the company’s performance as well.
The initiation of coverage by Morgan Stanley provides investors with a new perspective on Semtech’s market position and future outlook in light of the recent challenges it has faced. The $30.00 price target reflects the firm’s assessment of the balance between Semtech’s potential growth opportunities and the risks posed by the current economic environment.
In other recent news, Semtech Corporation reported a strong fourth quarter for fiscal year 2025, with earnings per share (EPS) of $0.40, surpassing the forecast of $0.33. The company achieved a revenue of $251 million, slightly exceeding the expected $250.18 million. Analysts from UBS and Stifel have adjusted their price targets for Semtech, lowering them to $60 and $54 respectively, while maintaining a Buy rating. UBS noted the minimal CopperEdge shipments this year but highlighted growing interest from over 20 customers and positive market fundamentals outside the data center sector. Stifel pointed out that despite a slight decrease in the upcoming quarter’s revenue outlook, Semtech’s strategic focus on research and development and capital expenditures is expected to support market share expansion.
Additionally, Semtech and Amphenol Corporation (NYSE:APH) announced the release of a new 1.6T OSFP Active Copper Cable, targeting AI/ML and data center markets. This product, featuring Semtech’s CopperEdge technology, is designed to work with the latest 200G/lane switches and xPUs, promising ultra-low power consumption and low latency. The collaboration between Semtech and Amphenol aims to address the growing demand for higher bandwidth interconnect solutions. These recent developments highlight Semtech’s strategic initiatives and market engagements, reflecting its commitment to innovation and growth within its core markets.
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