Semtech (SMTC) is likely to report "upside" to fiscal Q1 results and fiscal Q2 outlook as demand for its data center artificial intelligence business ramps up, Oppenheimer said in a report emailed Friday.
The brokerage said ramping deployments of active copper cables and linear pluggable optics with large cloud service providers, including what it believes is a deployment by Alphabet's (GOOG, GOOGL) Google, are driving growth.
Oppenheimer expects the ACC and LPO market to grow at a 90% compound annual growth rate through 2029, according to the report.
Semtech's "Infrastructure" segment, which accounts for 33% of revenue, is expected to rise 9% sequentially and 29% year over year, supported by "FiberEdge" products and increasing AI data center demand, the report said. The firm also pointed to "accelerating" demand for LoRa products in Semtech's Industrial segment as "multiprotocol" capabilities expand use cases in robotics, drones and automation.
Semtech has "identified a preferred buyer" for its SWIR cellular modules business, and a divestiture could immediately boost earnings per share and raise companywide gross margins to above 60% from just over 50%, Oppenheimer said.
Oppenheimer reiterated an outperform rating on Semtech and raised its price target to $150 from $110.
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