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Semtech (SMTC), valued at $3.8 billion, designs, develops, manufactures, and markets analog and mixed-signal semiconductor products and advanced algorithms. Its portfolio includes products for optical data communications, video transport, and other industrial applications.
Additionally, it offers integrated circuits (ICs) used in data centers, enterprise networks, optical wireless networks, and high-speed interface applications. Semtech serves original equipment manufacturers (OEMs) and suppliers in verticals such as enterprise computing, communications, and consumer and industrial end markets.
In the last 10 years, SMTC stock has returned 100% to shareholders, trailing broad-market indices such as the S&P 500 Index ($SPX), Nasdaq Composite ($NASX), and the Dow Jones Industrial Average ($DOWI).
Let’s see if it makes sense to own this semiconductor stock before its upcoming earnings next week.
What Does Wall Street Expect From SMTC Stock?
Semtech is scheduled to announce its fiscal Q3 of 2025 (ended in October) earnings after the close on Monday, Nov. 25, and is forecast to report:
- Revenue of $232 million, up from $201 million last year
- Earnings per share of $0.23, up from $0.02 last year
This indicates that Wall Street expects Semtech to increase its sales by 15.5% year over year, while adjusted earnings are forecast to expand by over 1,000%.
Similar to several other chip stocks, Semtech has significant exposure to the artificial intelligence (AI) market. Its analog solutions provide lower power and latency than DSP (digital signal processors) solutions. Lower power consumption and latency reduction for transport are crucial considerations for AI computing. Semtech has delivered on these transport opportunities, widening its revenue base towards compute and memory solutions.
Notably, Semtech has also partnered with Nvidia (NVDA) to implement low-power, low-latency active copper cables for the latter’s line-up of Blackwell racks and pods. In Q2 of fiscal 2025, Semtech reported infrastructure net sales of $52.9 million, while net sales for its data center business rose by 37% year over year to $27.2 million. In hyperscale data center applications, net sales more than doubled compared to the year-ago period.
Is SMTC Stock Overvalued?
Like other companies, Semtech has focused on rationalizing expenses and improving its balance sheet in recent months. Management noted that certain assets in its portfolio are not core to its long-term strategy, and may be sold. The proceeds of these asset sales will primarily be used to reduce long-term debt.
Semtech’s long-term debt has increased from $195 million in fiscal 2020 to $1.19 billion at the end of fiscal Q2. In the last 12 months, its interest expenses have surpassed $102 million, compared to $9 million in 2020.
Moreover, its free cash outflow in the last year totaled $10 million, compared to an outflow of $123 million in fiscal 2024. We can see that Semtech is not generating enough FCF to lower its debt organically, and has to depend on asset liquidations to shore up its financials.
Analysts tracking the tech stock expect adjusted earnings to grow from $0.14 in 2024 to $0.68 in 2025, and $1.57 in 2026. So, priced at 31.2x forward earnings, SMTC stock is not cheap, and could have minimal room for error in its upcoming earnings report.
Out of the 12 analysts covering SMTC, nine recommend “strong buy,” one recommends “moderate buy,” and two recommend “hold.” The average target price for SMTC is $52.60, only about 3% above the current trading price.
