Growth stocks are shares of companies that are still in the process of growing. They allow investors with a high risk tolerance and a longer investment horizon to earn significant returns when the underlying business thrives.
Furthermore, growth stocks with a "strong buy" consensus rating on Wall Street reflect analysts' confidence in the company's future growth prospects.
Wall Street is bullish on tech stocks Semtech Corporation (SMTC) and Hubspot (HUBS), especially now that the artificial intelligence (AI) revolution is in full swing, rating both a "strong buy." Let's learn more about these two growth stocks.
#1. Semtech Corporation
Valued at $2.8 billion, Semtech Corporation (SMTC) is a leading supplier of high-performance analog and mixed-signal semiconductors, and has been a key player in the technology industry for decades. SMTC is well-known for its innovations in the IoT, broadband, and data center markets.
Semtech stock has soared 100% year-to-date, compared to the S&P 500 Index's ($SPX) gain of 18.4%.
In the second quarter of fiscal 2025, Semtech posted revenues of $215.4 million - lower than $238.4 million in the year-ago quarter, but still reflecting a resilient performance in the face of challenging conditions.
Adjusted earnings per share (EPS) fell to $0.11, down from $0.13 in the year-ago quarter. Both revenue and earnings surpassed consensus estimates. The company’s adjusted gross margin remained robust at around 50.4%, showcasing its ability to maintain profitability.
The company's focus on the industrial and communications sectors, including its LoRa (Long Range) technology, has been a major growth driver. LoRa, a critical component in the Internet of Things (IoT), enables long-distance communication with low power consumption.
Semtech is well-positioned to benefit from the expanding IoT market trend. Management highlighted in the Q2 earnings call that “LoRa consumption in industrial applications continue to grow” particularly in a wide “range of applications from healthcare, smart utilities and smart city to factory automation with a recent deployment in automotive facilities.”
Semtech has been actively expanding its portfolio, particularly in the IoT space, which is expected to drive significant revenue growth in the years ahead.
Management believes infrastructure could be the strongest short-term tailwind. For the third quarter, the company expects sales to increase by 15.9% to $233 million (plus or minus $5 million). Furthermore, EPS could be around $0.23 per share
Analysts that cover Semtech expect earnings to jump 387.1% to $0.68 per share in fiscal 2025, with further gains of 129.3% to $1.56 in fiscal 2026. Trading at 27 times forward 2026 earnings, Semtech seems like a reasonable AI stock to buy now.
What Does Wall Street Say About Semtech Stock?
Overall, Wall Street rates Semtech stock a “strong buy.” Out of the 12 analysts that cover SMTC, 10 rate it a “strong buy,” while one recommends a “moderate buy,” and one suggests a “hold.”
Based on analysts' average price target of $49.20, Wall Street sees a potential upside of about 12.3% over the next 12 months. Wall Street has assigned a high target price of $60 for Semtech, which implies a potential price jump of 36.9% from current levels.
#2. HubSpot
HubSpot (HUBS) is an emerging player in the customer relationship management (CRM) software space. It is well-known for its user-friendly software-as-a-service (SaaS) platform for small and medium-sized businesses (SMBs), which has helped it build a loyal customer base and achieve consistent revenue growth.
As the company expands its product offerings and enters new markets, Wall Street remains optimistic about its long-term prospects.
Valued at $25.5 billion, Hubspot stock has dipped 14% YTD, compared to the broader market's gain this year.
In the second quarter, the number of customers grew by 23% to 228,054. Total revenue increased by 20% to $637.2 million, thanks to a 20% increase in subscription revenue and an 18% increase in professional services revenue. Adjusted net income for the quarter stood at $1.94 per diluted share, up from $1.38 in the prior-year quarter.
Hubspot reported $1.9 billion in cash and marketable securities at the end of the quarter, as well as $92 million in free cash flow. This cash balance should allow the company to use AI to innovate its products. In its Q2 earnings call, management said that AI is being integrated into all of its hubs, as well as the smart CRM.
Management expects revenue to range between $2.567 billion and $2.573 billion for the full year, representing an 18% increase at the midpoint. Furthermore, EPS could range between $7.64 and $7.70, below the consensus estimate.
Analysts expect HUBS earnings to rise by 30.8% and 15.7%, respectively, over the next two years. The stock's valuation appears to be high, trading at 64 times forward 2024 earnings and 9 times forward sales. Comparatively, Salesforce (CRM) is valued at 25 times forward 2025 earnings.
HubSpot's expansion into new markets, continued product innovation, and strategic acquisitions are all expected to drive future growth. While HubSpot has established a strong presence in the growing CRM and SaaS markets, it faces stiff competition from larger CRM players, such as Salesforce and Microsoft (MSFT).
Until Hubspot maintains a consistent earnings growth trajectory, starting with a small stake in this cloud software stock would be a wise decision right now.
What Does Wall Street Say About Hubspot Stock?
Wall Street has assigned a “strong buy” rating to HUBS stock. Out of 28 analysts covering the stock, 21 rate it a “strong buy,” three recommend a “moderate buy,” and four rate it a "hold.”
Its mean target price of $625.16 suggests a potential upside of 25.3% over current levels. The Street-high target price for HUBS of $730 implies a potential upside of 46.3%.
