We recently published a list of 10 Unstoppable Stocks to Buy in 2025. In this article, we are going to take a look at where Semtech Corporation (NASDAQ:SMTC) stands against other unstoppable stocks to buy in 2025.
As per the recent earnings update by FactSet dated 24th January 2025, the Q4 2024 earnings season for the S&P 500 has seen a strong start. Notably, the percentage of S&P 500 companies publishing positive earnings surprises and the magnitude of earnings surprises are more than 10-year averages. The analysts anticipate YoY earnings growth rates of 11.3% and 11.6% for Q1 2025 and Q2 2025, respectively. For CY 2025, they project a YoY earnings growth of 14.8%.
Outlook for US Equities For 2025
UBS expects the S&P 500 to reach 6,600 by 2025. Despite the potential for tariff imposition, which can result in volatility over the short term, UBS expects that healthy US economic growth and structural tailwinds from AI might lend some support. The combination- resilient growth and lower Fed rates- has earlier been a powerful force for US stocks. History has suggested that when the Fed cut rates and the country did not enter recession, the broader US equities saw an increase of 18% on average in the 12 months after the first cut.
UBS also believes that the earnings season showcases strong AI capital spending intentions, which supports the positive outlook on technology stocks. Furthermore, the earnings growth continues to broaden into non-tech companies. The US deregulation and tax cuts might support this trend.
READ ALSO: 7 Best Stocks to Buy For Long-Term and 8 Cheap Jim Cramer Stocks to Invest In.
Growth Drivers for the US Equities
UBS expects that the US economic backdrop remains supportive, the broader market is less at risk from tariffs compared to other international markets, and structural trends around AI and power & resources boost the outlook. It believes technology, utilities, financials, and healthcare sectors are attractive in the US. The AI infrastructure spending is strong, and the firm expects that key semiconductor components required for AI will remain supply-constrained in 2025, supporting pricing. Furthermore, the tech sector is expected to benefit from an improvement in PC and smartphone end markets.
With respect to utilities, UBS expects that significant growth in AI data centers will fuel power demand, resulting in higher power prices. While the broader financials sector is expected to be aided by Fed rate cuts, the healthcare sector might see recovery in the next few months. This recovery is expected to be driven by higher healthcare spending and advancements in digitalization that can fuel efficiency and reduce costs.
Our Methodology
To list the 10 Unstoppable Stocks to Buy in 2025, we used a screener to filter out the companies having at least $2 billion of market capitalization. Next, we chose stocks that have gained more than 30% over the past 6 months and in which analysts expect an upside of at least 30%. Finally, the stocks were arranged in ascending order of their average upside potential, as of 27 January. We also mentioned the hedge fund sentiment around each stock, as of Q3 2024.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A technician looking at a circuit board of analog semiconductor products.
Semtech Corporation (NASDAQ:SMTC)
Market Cap as of 27th January: $4.54 billion
Return Over Past 6 Months: ~84.0%
Average Upside Potential: ~34.3%
Number of Hedge Fund Holders: 32
Semtech Corporation (NASDAQ:SMTC) is engaged in designing, developing, manufacturing, and marketing analog and mixed-signal semiconductors and advanced algorithms. Roth MKM analyst Scott Searle upped the company’s price target to $75 from $70, keeping a “Buy” rating. As per the analyst, Semtech Corporation (NASDAQ:SMTC)’s $661 million secondary offering offers significant financial flexibility by decreasing interest and leverage ratios while being accretive immediately. Notably, with its management continuing to monetize non-strategic assets, the research firm believes that components of the company’s Sierra Wireless can be sold in H1 2025, further reducing its net debt and allowing it to focus and transform.
Elsewhere, Needham increased the price target of Semtech Corporation (NASDAQ:SMTC) to $74 from $70, maintaining a “Buy” rating. As per the analyst, the company is focused on divestiture and portfolio optimization strategy, and a healthier balance sheet can significantly enhance its negotiating position. Furthermore, Semtech Corporation (NASDAQ:SMTC)’s management is expected to now focus on accelerating revenue growth, expanding margins, and optimizing product portfolio.
Data centers need high-speed and reliable connectivity to support increasing data traffic, mainly considering the rise of AI, cloud computing, and 5G. The company’s Signal Integrity Products allow high-speed data communication, that are important for modern data center architectures. 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.”
Overall, SMTC ranks 7th on our list of unstoppable stocks to buy in 2025. 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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Disclosure: None. This article is originally published at Insider Monkey.
