Semtech (SMTC): Reassessing Valuation After Solid Q3 Results and Record Data Center Growth

Semtech (SMTC) just delivered a quarter that largely did what investors wanted: steady execution, record data center sales, and clear guidance pointing to more growth ahead even as margins feel some mix pressure.

See our latest analysis for Semtech.

That narrative seems to be feeding into the stock’s momentum, with a roughly 22.6% 3 month share price return and a powerful 3 year total shareholder return of about 156%, even though the latest close is $73.46.

If Semtech’s trajectory has you thinking about what else might be building momentum in chips and connectivity, now could be a good time to explore high growth tech and AI stocks.

Yet with shares hovering just below analyst targets after a huge three year run, is Semtech still trading at a discount to its true earnings power, or is the market already pricing in the next leg of growth?

Most Popular Narrative Narrative: 8.4% Undervalued

With Semtech last closing at $73.46 against a narrative fair value of about $80.21, the story leans toward upside driven by earnings power and margins.

Analysts expect earnings to reach $253.1 million (and earnings per share of $2.05) by about September 2028, up from $23.8 million today.

In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 35.8x on those 2028 earnings, down from 210.9x today. This future PE is greater than the current PE for the US Semiconductor industry at 30.1x.

Read the complete narrative.

Curious what kind of revenue ramp and margin lift could turn today’s modest profits into that future earnings engine and premium multiple story? The full narrative lays out the step by step financial path behind that valuation call.

Result: Fair Value of $80.21 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, recent margin pressure from a lower quality mix and the goodwill impairment in connected services show how quickly this upbeat narrative could be challenged.

Find out about the key risks to this Semtech narrative.

Another Lens on Valuation

While the narrative fair value suggests Semtech is 8.4% undervalued, our DCF model points the other way. It puts fair value closer to $47.26. On that view, today’s $73.46 price bakes in a lot of growth already and leaves less room for error if margins slip.

Look into how the SWS DCF model arrives at its fair value.

Build Your Own Semtech Narrative

If you see the story differently or would rather dig into the numbers yourself, you can build a custom view in just a few minutes, starting with Do it your way.

A great starting point for your Semtech research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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