Semtech Upgraded: Analyst Sees Underappreciated AI Optical Angle, Benefits From China IoT Ban

Susquehanna analyst Christopher Rolland upgraded shares of Semtech Corporation SMTC to Positive from Neutral and maintained the price target of $30.

The company reported street-beating performance in Q2, where net sales of $238.4 million increased 0.8% sequentially and 13.9% year-over-year.

Rolland thinks the stock has an underappreciated AI optical angle driven by analog PAM4, LDD, and TIA/driver.

The analyst adds that Congress is pushing for a China IoT module ban that is already benefiting Semtech market share gain. In fact, the company believes that some customers are already shifting their supply chains to include Semtech in the future to get out ahead of a potential ban.

The analyst suggests a fairly straightforward turnaround game plan for the stock - cut costs further, reinvest in high ROI products, and deleverage through asset sales when the timing/price is right.

Rolland notes that handset units appear to have some upside, and Chinese SAR regulation/Apple Inc AAPL wins should benefit proximity/protection.

The analyst thinks Sierra Wireless was a horrible acquisition of SMTC that may have been meant to cover the revenue hole left in the wake of the Helium bubble.

However, Rolland adds that Sierra estimates have finally been de-risked, likely marking the bottom for the business and company revenue overall.

Price Action: SMTC shares are trading higher by 5.97% to $24.24 on the last check Thursday.