Why Semtech Stock Is Rallying After Its NVIDIA Setback

Key Points

• After taking an NVIDIA-related whacking, shares of Semtech are up more than 80%.
• The company's robust financial improvements show that it does not need NVIDIA to impress markets.
• Now, analysts are placing their highest price targets on the stock of 2025, suggesting substantial upside.

For mid-cap semiconductor stock Semtech NASDAQ: SMTC, 2025 has been a wild ride. In January, the stock surged to a three-year high of just over $77. However, just as a positive development surrounding NVIDIA NASDAQ: NVDA can lead a stock to explosive gains, a negative one can bring a stock to its knees. Shares dropped 31% on Feb. 10 as the firm greatly reduced its expectations for its NVIDIA-related business.

However, as MarketBeat pointed out as a possibility, investors have shown that Semtech’s pullback was an overreaction. Since that fall, shares are up by around 81%, reaching $68. Now, multiple Wall Street analysts see the stock reaching heights not seen since 2021. Below, we’ll detail Semtech’s journey, its upside potential going forward, and why this is a name investors should pay attention to.

SMTC: The NVIDIA Story That Never Was

In early 2025, Semtech soared to its three-year high due to a significant business turnaround. From Q1 2024 to Q3 2024, its data center revenues more than doubled, rising from around $21 million to $43 million. This helped Semtech’s adjusted gross margin rise by over 250 basis points to 52.4%. Its adjusted operating margin also ballooned by over 600 basis points to 18.3%.

Additionally, excitement was growing around the company’s CopperEdge chips for active copper cables (ACCs). In Q2 2024, the company said it was partnering with NVIDIA to deploy the products with its Blackwell server racks. CopperEdge chips help extend the range and efficiency of copper cables used to connect data center components. The fact that NVIDIA was working with Semtech, an only $3.5 billion firm at the time, was a highly promising sign for its future.

However, Semtech then dropped a bomb that led to a massive sell-off. The company greatly reduced its CopperEdge guidance for fiscal 2026, as NVIDIA pulled back on the partnership. This shocked many investors, leading to the massive drawdown in Semtech shares. However, Semtech’s story is bigger than NVIDIA. The company is making extensive improvements in its business, even with NVIDIA taking a backseat, showing its ability to continue doing so going forward.

Semtech’s Financials Keep Showing Up in the Face of NVDA Slump

Despite selling due to Semtech’s NVIDIA disappointment, the company’s financial results have consistently delivered. In eight out of the company’s last 12 earnings releases, shares have gained by 4% or more the next day. This is a highly positive indicator of the company’s future. At the end of the day, actual fundamental improvements are the best signs of a stock’s ability to keep winning in the long run.

Semtech has demonstrated an ability to do just that. Last quarter, Semtech’s revenues came in at an all-time high level of nearly $258 million. Its gross margin of 53% was right in the middle of the pack among 41 U.S. chip stocks with market capitalizations of $5 billion or more. Despite Semtech’s revenues being in the bottom 15 of this group, this indicates that the company’s gross margin has the potential to improve significantly as it expands its revenue base.

Notably, increasing its gross margin is one of Semtech’s central goals. The company seeks to expand its gross margins to between 58% and 63% over the long term. Given Semtech’s demonstrated success in expanding its margins so far, achieving this goal is far from outside the realm of possibility.

The company’s data center business, which grew by 92% last quarter, can be a key driver of Semtech’s margin expansion. The firm sent CopperEdge to multiple hyperscale customers for testing and qualification. This opens the door to further revenue acceleration and margin expansion. If achieved, markets would likely award Semtech a considerably higher share price.

Analysts Eye +15% Upside, But This May Just Be the Tip of the Iceberg

Recently, analysts have put out price target forecasts on Semtech that are the highest the stock has seen in 2025.

Specifically, Stifel Nicolaus and Oppenheimer recently placed $80 and $81 targets on the stock.

These figures imply between 17% and 19% further upside in Semtech shares.

Although this amount of upside potential is solid, Semtech may be able to ride considerably higher than these targets.

The company securing CopperEdge deals with hyperscaler firms would be a key catalyst for this.

With NVIDIA already showing past CopperEdge interest, it could be just a matter of time before Semtech gets its next big customer.