The artificial intelligence (AI) revolution is in full swing, and tech giants like Microsoft (MSFT), Amazon (AMZN), Google (GOOGL), Meta Platforms (META), and Nvidia (NVDA) have emerged to dominate the scene. But as the impact of AI starts to ripple across multiple sectors and industries, more and more potential winners from the technological revolution are starting to join the race.

One lesser-known player, Semtech (SMTC), has rapidly emerged as a beneficiary of this AI boom. This semiconductor company, known for its high-performance analog and mixed-signal chips, saw its shares skyrocket by a whopping 10% on March 27, just ahead of its fiscal fourth-quarter earnings release.

This spike came after analysts at Baird highlighted Semtech as a "hidden AI gem" and tagged it as a "Bullish Fresh Pick." The analysts tagged SMTC with an "overweight" rating and a lofty price target, just ahead of the company's earnings reveal - where an upbeat revenue forecast sparked another round of buying.

With the AI wave getting bigger and stronger, here' s a closer look at how this "hidden AI gem" is positioning itself to capitalize on the burgeoning AI market and why analysts are bullish on its prospects.

SMTC Stock Outperforms

Valued at $2.26 billion by market cap, Semtech Corporation (SMTC) is a designer and manufacturer of semiconductors based out of California. SMTC has been a standout performer this year, up 48.9% year-to-date - outperforming the broader S&P 500 Index ($SPX), up 7.9%, by a wide margin.

However, the stock isn't too expensive at current levels, based on its price/sales ratio of 2.47. That's a discount not only to SMTC's own 5-year average price/sales multiple, it's also cheaper than peers like Silicon Labs (SLAB) and MaxLinear (MXL).

For what it's worth, Semtech's CFO Mark Lin thinks the stock is a good buy around current prices. The exec scooped up 1,000 shares of SMTC at $33.23 each earlier this month - not the biggest insider buy, but when insiders put their money where their mouth is, it's generally viewed as a vote of confidence in the company's future.

SMTC Surprises to the Upside on Revenue

In its recent fiscal Q4 2024 earnings, released in late March, Semtech reported a mixed bag of results. The company reported wider-than-forecast loss per share of $0.06, but revenue of $192.9 million surpassed Wall Street's forecast of $191.2 million. 

Revenue guidance came in strong, too. For the current quarter, SMTC expects revenue to range between $195 million and $205 million - which, at the midpoint, exceeds the average Wall Street estimate of $195.3 million.

Focusing on the bottom line, analysts expect Semtech to narrow its full-year loss to $0.09 in fiscal 2024, before swinging to a profit of $0.66 per share in fiscal 2025.

What's Driving Growth at Semtech?

Outside of AI, Semtech is eyeing growth opportunities in the Internet of Things (IoT) and 5G. Following last year's acquisition of Sierra Wireless, the company forecast its IoT market potential rising to a whopping $10 billion by 2027. 

And Semtech is leveraged to the rollout of 5G Advanced with its 25G transceiver chips, including the Tri-Edge GN2256 lineup, unveiled at the Optical Fiber Communication 2024 expo. And let's not forget the AirLink XR60, which they're calling the world's tiniest rugged 5G router. 

Along with rising demand for AI tech, Semtech looks well-positioned to capitalize on the booming demand for cutting-edge chips across various industries. 

What Do Analysts Expect for SMTC?

Analysts are feeling bullish about Semtech's growth potential. Out of 12 experts in coverage, a whopping 10 are all in with a “strong buy” rating. There's also one who's feeling a bit more cautious with a “moderate buy,” and just one playing it cool with a “hold.”

The average target price is $39.15, hinting at a tasty 19.9% upside from Semtech's Friday close. And as for Baird analyst Tristan Gerra, who called Semtech a “hidden AI gem,” he's setting his sights even higher. 

"We believe Semtech is very well positioned with the upcoming ramp of new AI platforms as one of two players in the space qualified for high-density copper interconnect," wrote Gerra. "Semtech is also well positioned with 800G modules in AI architectures." The analyst set a price target of $40, implying expected upside of more than 22%.

The Bottom Line on SMTC Stock

Semtech Corporation is really making a name for itself as a dark horse in the AI and semiconductor space. The revenue forecast is bright, analysts are upbeat about its prospects, and profitability could be on the horizon. With more upside expected, it’s definitely worth keeping tabs on this company as it carves out a leading spot in the AI game.