After Semtech’s 240% Jump: Will the New Partnership with Nvidia Drive More Upside?
Semtech’s data center business is accelerating—can a new partnership with Nvidia turbo-charge growth?

- Semtech is making waves in AI and data centers, fueled by a new partnership with Nvidia.
- Semtech’s Q3 results highlighted its expanding share of the AI infrastructure market, led by a sharp increase in data center sales.
- With its valuation at the upper end of analyst expectations, Semtech’s near-term earnings reports will be pivotal in determining whether it can sustain this aggressive growth trajectory.
Semtech (SMTC) has emerged as one of the semiconductor sector’s most striking success stories, with its stock soaring more than 240% over the past 52 weeks. After a couple of disappointing quarters, the company has staged a remarkable turnaround, fueled by a strategic pivot toward high-growth markets such as artificial intelligence (AI), data centers and 5G telecommunications.
At the heart of this transformation is Semtech’s new identity, underscored by its recent partnership with Nvidia (NVDA)—an alliance that strengthens the company’s position in the rapidly expanding AI infrastructure and cloud technologies market. While Semtech’s rebound is noteworthy, the crucial question for investors remains: Can it sustain the momentum? Today, we explore the company’s turnaround, its valuation and the opportunities—and challenges—that lie ahead.

Semtech’s strategic pivot: AI and data centers
Semtech, a prominent semiconductor company, has strategically positioned itself at the intersection of several high-growth technology sectors. It spans data centers, 5G telecommunications and AI. With a focus on analog and mixed-signal solutions, Semtech manufactures products vital to the performance and efficiency of critical high-tech infrastructure. Semtech’s product lineup includes signal integrity components, power management solutions and sensors—all of which are essential for enabling seamless data transmission and high-speed connectivity. These products have become indispensable for customers who where there’s a need for performance, scalability and energy efficiency, particularly in 5G networks, and in the rapidly expanding data center sector.
At the core of Semtech’s strategy is its growing emphasis on AI, where the demand for efficient, high-performance data processing has skyrocketed. With AI and machine learning applications fueling unprecedented data growth, Semtech’s innovations are critical in powering the infrastructure that underpins this revolution. And while the company’s established presence in 5G infrastructure is a critical differentiator, its expanding focus on data strengthens its position in newer markets.
A key development for Semtech was its partnership with Nvidia, which has propelled the company into the heart of the high-performance computing and AI markets. By providing advanced interconnect solutions, Semtech is helping to support Nvidia’s ambitious AI-driven initiatives, particularly in deep learning and autonomous systems. This collaboration underscores the growing synergy between Semtech’s expertise and the most dynamic trends in tech. Moreover, aligning with Nvidia, a leader in AI and GPU markets, boosts Semtech’s potential to capture market share in emerging sectors.
Semtech’s strong Q3 earnings and the path to profitability
Shares of Semtech have shown a significant upward trajectory, rising by nearly 240% over the last 52 weeks. And the company’s most recent Q3 earnings report appears to validate those gains.
For the period ending Oct. 27, 2024, Semtech reported a year-over-year revenue increase of approximately 18%, totaling $237 million. This growth was driven by a remarkable 58% surge in data center sales, which reached a record $43 million. The company’s strong performance in the data center sector is particularly significant because it opens the door to even more attractive growth opportunities in both revenue and profitability. Semtech’s products are crucial in enabling the high-speed, low-latency connectivity required for data-intensive applications, making them a natural fit for the rapidly evolving AI era.
Semtech’s Q3 results also highlighted a significant improvement in profitability, with GAAP gross margin rising to 51%, up from 48.4% in Q2. This increase was driven by the company’s renewed focus on operational efficiency and stronger demand across its core product lines. Operating income surged to $17.8 million, and operating margin rose to 7.5%—the latter more than doubling compared to Q2. These robust improvements reflect the success of Semtech’s strategic focus on expanding into new markets, enhancing operations and implementing increasingly effective cost controls.
The company’s ability to turn around its performance is even more impressive in the context of Q2, when revenue declined year-over-year. Despite that Q2 setback, Semtech forecasted that growth would return in Q3, and the results have exceeded expectations. One of the most striking improvements was the company’s operating income, which more than doubled, climbing from $7.8 million in Q2 to $17.8 million in Q3. This dramatic shift not only validated Semtech’s forecast, but also puts the company in reach of overall profitability.
The company did report a net loss of $0.10 in Q3, but that was substantially better than the -$2.61 figure from the quarter prior. And the adjusted figure was actually +$0.26 (highlighted below). These figures were well-received by the market, which pushed Semtech shares higher in the wake of earnings. Since the Q3 report was released on Nov. 25, the stock has gained more than 40%.

Elevated valuation demands rapid sales growth
Semtech’s valuation is a key point of consideration. The company’s stock price has risen sharply, driven by its strategic pivot and strong performance, but this has led to a valuation some may perceive as stretched. With a forward-looking P/E ratio of 95 (non-GAAP), Semtech’s stock is trading at a premium compared to broader market averages. However, this high valuation should be viewed within the context of the company’s recovery phase and its positioning within rapidly growing sectors like data centers, internet of things (IoT) and AI. While the current price may seem elevated, the continued growth in these markets could justify such a premium if Semtech can deliver on its expansion plans.
Looking at the company’s earnings profile, one drawback is that Semtech hasn’t yet reached profitability, with GAAP diluted loss per share of $0.10 in Q3. However, non-GAAP metrics reveal more favorable figures, with earnings per share of $0.26. This discrepancy underscores the importance of focusing on adjusted metrics when assessing the company’s performance, particularly in the face of substantial debt and ongoing efforts to scale its operations in line with its ambitious growth targets.
Semtech’s forward price-to-earnings ratio, when compared to the semiconductor sector median of 25, appears steep, but this again is somewhat mitigated by the company’s strong potential for revenue growth, as evidenced by the Q3 report. According to analysts, the stock is viewed favorably, with 12 of 13 analysts rating it as “buy” or “overweight,” and a consensus price target of $77 per share, indicating a slight upside from its current trading price of $75.
Overall, the market appears to be pricing in an optimistic near-term path for Semtech’s business. Whether this valuation can be sustained will depend on the company’s ability to deliver on its growth promises, manage its debt and continue to expand its footprint in both the AI and data center sectors. For the time being, however, the stock’s recent performance (rising 240% in the last 12 months)—alongside uber-bullish analyst sentiment—appears to confirm the company’s successful turnaround, as well as its newfound potential.

Near-term earnings will make or break Semtech’s valuation
Semtech Corporation has executed a remarkable turnaround, marked by a 240% rise in its stock price over the past 52 weeks. The company’s Q3 earnings report highlights the success of this shift, with strong performance in the data center sector and an expanding presence in AI-driven infrastructure. This turnaround is further supported by Semtech’s strategic partnership with Nvidia, strengthening its position in the rapidly growing AI and high-performance computing markets.
The next couple of earnings reports will be crucial in determining whether Semtech shares can sustain their momentum. After the DeepSeek-related correction on January 27, the stock is now trading about $60/share, well below the average analyst price target of $75/share
Andrew Prochnow has more than 15 years of experience trading the global financial markets, including 10 years as a professional options trader. Andrew is a frequent contributor Luckbox magazine.
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