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Semiconductor companies play a crucial role in the technology sector, designing and producing computer chips and related components. That's exactly why semiconductors have been at the center of hawkish trade talk, with the Biden administration signaling it's set to clamp down on companies that ship advanced chip equipment to China, like ASML (ASML) - and separately, industry-critical Taiwan Semiconductor (TSM) is trading down after GOP nominee Donald Trump told Bloomberg Businessweek that Taiwan “did take about 100% of our chip business.”
Looking beyond today's geopolitical chatter, semiconductor stocks are poised for double-digit growth in 2024. Industry forecasts predict a promising 13.1% rise in chip sales for the year, reversing a decline in 2023. This positive trend is already reflected in the 15.8% monthly increase in global semiconductor sales in April, reaching $46.4 billion.
The ongoing artificial intelligence (AI) boom further underscores the potential of investing in semiconductor stocks. According to Precedence Research, the global semiconductor market could reach an impressive $1.137 trillion by 2033, up from $544.78 billion in 2023. As AI technologies continue to expand, the demand for semiconductors will only grow.
While some bargains have disappeared from the semiconductor space after the last year's rally, the potential for substantial returns over the long term remains high. Now, with chip stocks pulling back from their recent highs, it's the perfect time for investors to explore investment opportunities in this dynamic sector.
Small-Cap Semtech Stock Stands Out
Outside the big semiconductor giants, Semtech (SMTC) stands out with its innovative digital solutions, valued at a market cap of $2.34 billion. Small-cap Semtech may not be considered one of the titans of the industry, but its innovative prowess and software solutions set it apart.
Semtech specializes in designing, developing, and marketing analog and mixed-signal semiconductors, along with advanced algorithms. Its product portfolio encompasses signal integrity solutions for optical data communications, video transport, data centers, enterprise networks, passive optical networks, wireless base station optical transceivers, and high-speed interfaces. Additionally, they offer video-over-IP technology for professional audio and video applications, all while maintaining a strong focus on sustainability and resource optimization.
Beyond that, Semtech excels in IoT systems and cloud connectivity. It is renowned for its pioneering LoRa technology that facilitates low-power, long-range communication for smart cities and industrial automation. Its comprehensive hardware and software solutions enable seamless cloud integration, enhancing real-time data processing and operational efficiency.
SMTC Sells Off on CEO's Surprise Exit
Semtech shares have been on a rollercoaster ride in the past 18 months. The stock fell by 23.6% in 2023, but it's showed remarkable resilience in 2024. SMTC has gained over 50% year-to-date, comfortably outperforming the broader equities market. The company's diverse end markets, innovative solutions, and strong financial results have heavily contributed to this remarkable resurgence.
That outsized YTD gain also accounts for a sharp sell-off on June 7, when SMTC cratered 17.9% in a single session after the company announced the unexpected departure of CEO Paul Pickle, due to “differences” with the board of directors.
Although the company has not disclosed further details behind the dismissal, a pending lawsuit suggests the former CEO was as surprised by analysts as the change in leadership; however, Semtech clarified that the C-suite overhaul was “unrelated to Semtech’s operational or financial performance,” and wouldn't require financial restatements. Semtech appointed company director Dr. Hong Q. Hou, a seasoned professional in the semiconductor industry, as the new CEO and president.
SMTC has subsequently rebounded, surging 19.7% from its June 7 lows.
Semtech has yet to achieve consistent profitability, but its forward price/sales ratio of 2.65 is 15% below the sector median, indicating the shares are reasonably priced at current levels.
Semtech Narrows Q1 Losses
Just ahead of Pickle's ouster, the semiconductor firm released its Q1 earnings report for the fiscal year 2025, which topped analysts' forecasts on the top line. Sales came in at $206 million, smashing the consensus expectations by $6 million, but down 13% year over year.
The company's GAAP net loss narrowed to $0.36 per share from $0.46 in the year-ago period, boosted by strategic cost-cutting measures, optimized operational efficiencies, and a focus on high-margin products. On an adjusted basis, SMTC earned a profit of $0.06 per share, beating expectations for a loss of $0.01 per share.
Longer term, Wall Street expects Semtech to achieve GAAP profitability on a full-year basis in 2026, with the consensus calling for $0.84 per share - a massive improvement from the expected loss of $0.03 per share for fiscal 2025.
What Do Analysts Think About Semtech Stock?
Analysts have stood behind their bullish ratings for Semtech after the CEO shake-up - including Craig-Hallum, which last week backed a "Buy" rating on the stock.
The firm's bullish outlook hinges on the anticipated growth fueled by new AI products and continued expansion in the data center segment. Notably, the firm projects a promising $100 million market opportunity in the AI Accelerator Card space by fiscal 2026, with Semtech and MTSI likely splitting this lucrative market.
Likewise, analysts at Baird backed a “Buy” on Semtech with a $50 price target, with analyst Tristan Gerra calling out the company's more efficient capital structure and strategic advantages, particularly its 800G modules and qualifications for high-density copper interconnects. Investors should note that Baird describes its price forecast for SMTC as conservative, and says it accounts for dilution stemming from Semtech's costly Sierra Wireless acquisition.
Overall, Wall Street is optimistic about Semtech stock, giving it a consensus "strong buy" rating. Among 10 analysts covering the stock, 9 have a "strong buy" rating, 1 has a "moderate buy," and 1 has a “hold” - unchanged from prior to Pickle's departure. This bullish group has set the mean price target for SMTC at $49.20, implying an expected 49% upside potential from its current price.
On the date of publication, Nauman Khan did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
