1. Semtech Corporation (NASDAQ:SMTC)
Average Upside Potential: 82.9%
Number of Hedge Fund Holders: 57
Semtech Corporation (NASDAQ:SMTC) is engaged in providing key semiconductor solutions that enable the infrastructure needs for AI applications. UBS initiated coverage of the company’s stock with a “Buy” rating and a price objective of $85. As per the analyst, it happens to be an analog company making inroads into AI data center networking due to a key content win for its CopperEdge product in Nvidia’s Blackwell platform. Semtech Corporation (NASDAQ:SMTC)’s CopperEdge product provides a cost-effective solution for reducing noise in AI data center networking, believes the analyst.
In Q3 2025, the company witnessed broad-based growth throughout each of its end markets, and mainly in a data center, where Semtech Corporation (NASDAQ:SMTC) expects AI-driven product demand to be a long-term and a transformational growth engine. As AI expands throughout different industries, the company’s role in offering key connectivity and power solutions has placed Semtech Corporation (NASDAQ:SMTC) well from increased demand for scalable and efficient AI infrastructure. Notably, AI models need specialized hardware which are required to be energy efficient and high-performance.
Heartland Advisors, an investment management company, released its Q4 2024 investor letter. Here is what the fund said:
“Technology. Semtech Corporation (NASDAQ:SMTC), which manufactures optical components and technology solutions used in data centers and IoT (Internet of Things) systems, is a position we initiated in the third quarter and increased our exposure to in the fourth.
Semtech, one of our Strategy’s best performers in the past quarter, is an example of a stock we’ve owned in the past and recently returned to as circumstances improved. We last held SMTC a few years ago, before it announced its acquisition of Sierra Wireless. The company levered up in late 2022 to make the purchase. Soon after the deal was completed, the stock sold off and the existing management team was replaced. The new management team is now seeking to divest some of Sierra Wireless’ assets to de-lever and regain focus on Semtech’s core business.
We’ve kept the company on our radar since the acquisition. Semtech’s signal integrity business, the company’s crown jewel franchise, is a backbone component of many data centers. With growing demand for data centers in the AI boom, we believe this could be a real opportunity for the company. New management has been clear they intend to divest non-core business lines to reduce leverage, which should unlock additional value. Yet the stock currently trades at a 20-25% discount to its peers based on EBITDA.”
While we acknowledge the potential of SMTC as an investment, our conviction lies in the belief that some deeply undervalued AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for a deeply undervalued AI stock that is more promising than SMTC but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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