The pullback in shares of the mid-cap semiconductor stock Semtech (NASDAQ: SMTC) has been extremely stark in 2025. Shares are down 40% as of the Feb. 14 close. Despite this, shares have still notched an impressive return of nearly 85% over the past 52 weeks. So, what’s driving this big decline? Is it an opportunity or a sign of structural problems for this growing firm? I’ll dive into recent news surrounding the firm to find out.
Semtech’s Big Sell-Off: Current Report Reveals Active Copper Conundrum
Poor earnings or guidance are often the catalyst that can lead to such a dramatic sell-off in a company in such a short time period. However, Semtech hasn’t reported any financial results since late Nov. 2024, and it won’t do so again until late March. However, a Form 8-K filing on Feb. 7 contained damning information. Investors use the Form 8-K, known as a Current Report, to learn about significant corporate events. The report contained just four relevant sentences but wiped out nearly a third of the company’s value.
It pertained to fiscal 2026 sales of the company’s CopperEdge product. Semtech said sales would be below its previous floor estimate of $50 million. CopperEdge products are active copper cables (ACCs); Semtech sees a significant market for them in data center infrastructure. ACCs contrast with passive copper cables. ACCs include technology that boosts and clears up signal quality while transferring information around a data center. This allows ACCs to deliver the same data transfer speed as passive copper while being over three times longer. As data centers grow more massive in physical size, the 5-meter length of Semtech ACCs has many benefits. It can allow for more efficient server placement, lower costs on switchers, and reduced latency.
Huge Customer Limits Semtech Relationship
First, it is important to recognize that Semtech’s fiscal year 2026 begins in the second quarter of the calendar year 2025. This means that the impact of losing these forecasted sales will come sooner than the beginning of the 2026 calendar year. More immediate impacts are more important than those further out. Based on analyst predictions, CopperEdge’s $50 million floor sales estimate may have contributed around 5% of fiscal 2026 total revenue. Losing this is significant but also not completely disastrous.
The company mentioned in earlier earnings calls that one customer could bring a base opportunity of $100 million in ACCs by 2025-2026. That increased number raised the stakes significantly. In the company’s latest earnings call, it said CopperEdge sales were in the “high-single-digit million dollars." Overall, markets were getting excited about the fast growth that could come from CopperEdge sales from that low Q3 base. Evidently, a big customer changed the design of its next-gen server racks to no longer use Semtech’s CopperEdge ACCs. The heartbreaking truth for Semtech is that the customer is NVIDIA (NASDAQ: NVDA). That is a big blow.
Is the Pullback Overblown?
Investors can still find some solace in this news. NVIDIA will continue to use Semtech in configurations for many server racks; this change only affects its latest GB200 racks. Meta Platforms (NASDAQ: META) will apparently still use a configuration that uses the CopperEdge cables. The company kept the door open concerning NVIDIA. They said, “Based on continued collaboration on future-generation server rack designs, its CopperEdge portfolio is expected to be included in these designs.”
Despite the disappointing news, many Wall Street analysts' price targets still show solid upside for shares of Semtech. The average of four price targets tracked by MarketBeat released after this news comes in at $60 per share. Compared to a Feb. 14 closing price of over $37, the target implies upside of 60% in Semtech shares. Just about three weeks ago, Semtech shares were trading for north of $75.
Although the loss of the NVIDIA relationship for its latest servers is disappointing, it is quite possibly an overreaction. Semtech has other products and segments that are currently contributing more to the business. Around 55% of its revenue came from its industrial segment last quarter. Within that, its LoRa-enabled solutions saw growth of 104%. There is likely upside to be had in this name as it looks to reposition its CopperEdge offering, which still provides a longer-term growth opportunity.
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