Semtech Corporation SMTC has plummeted 50.6% in the past month, underperforming the Zacks Semiconductor - Analog and Mixed industry’s decline of 1.5%, Zacks Computer and Technology sector’s return of 1.7% and the S&P 500’s appreciation of 1.8%.

Semtech stock has been witnessing a decline following the company's announcement that net sales of its CopperEdge products are expected to fall below the prior floor estimate of $50 million for fiscal 2026. The downward revision of sales figures is attributed to a change in server rack architecture following unfavorable feedback from NVIDIA, which is SMTC’s key customer.

In response to this unexpected forecast, several law firms have filed lawsuits against SMTC suspecting a potential securities law breach by Semtech. The culmination of these events caused investors to panic, sending SMTC stock down.

One-month Price Return Performance

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SMTC Faces Economic and Competitive Challenges

The recent geopolitical tensions pose a substantial threat to Semtech’s revenue streams. China and Hong Kong accounted for 32% of SMTC’s total revenues in 2024, making this region its highest contributor. However, emerging geopolitical uncertainty, regulatory hurdles and tariffs have the potential to affect future growth in China.

SMTC also faces stiff competition from other semiconductor companies that produce comparable products. SMTC’s passive optical network (PON) products compete with those of Broadcom’s AVGO. In the IoT & Wireless Solutions market, companies like STMicroelectronics STM and ON Semiconductor ON offer comparable products to those developed by Semtech.

Broadcom produces a range of PONs, including BCM68660 and BCM55050, that are comparable to Semtech's 50G HS-PON Chipset. Both SMTC and AVGO have PONs dedicated to 10G optical network markets too. ON Semiconductor and STMicroelectronics develop LoRaWAN, power management and transient voltage suppression devices comparable to those of Semtech.

The competition, intensified by these players, gives customers greater leverage in negotiating better pricing, which impacts Semtech’s sales volume and compresses its profit margins. Additionally, this competitive pressure limits Semtech’s ability to scale its business effectively.

Technical Indicator Signals Further Downtrend for SMTC Stock

Adding to investors’ pessimism, Semtech shares are trading below the 50-day moving average, a technical indicator often seen as a bearish signal. This movement suggests a potential continuation of the downward trend.

SMTC 50-Day Moving Average Chart

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Growing Demand for IoT and AI Keeps SMTC Afloat

Despite near-term challenges, SMTC's commitment to innovation is evident in its continued investment in advanced design solutions and next-generation technologies that position the company to capitalize on emerging trends, such as AI, cloud computing and smart infrastructure.

Furthermore, Semtech’s solid pipeline of products and strategic focus on high-demand markets like AI and IoT ensure a sustainable growth trajectory. Semtech’s IoT revenues also demonstrated resilience, growing 11% sequentially in the third quarter of fiscal 2025. Semtech is gaining from the growing adoption of its LoRa technology and LoRaWAN standards, which enable efficient, long-range and low-power wireless connectivity for a range of industrial applications.

During the last earnings call, management highlighted strong bookings and backlog for IoT solutions, boosting its momentum across end markets, such as smart cities, agriculture and logistics. For Semtech, this segment remains a crucial growth driver as IoT adoption advances globally.

The Zacks Consensus Estimate for fiscal 2025 and 2026 reflects this optimism, with revenues expected to grow 4.3% and 18.47%, respectively. EPS is projected to increase 442.86% for fiscal 2025 and 118.86% for fiscal 2026.

Semtech has surpassed the Zacks Consensus Estimate for earnings thrice in the trailing four quarters while missing the same on one occasion, the average negative surprise being 0.56%.

Find the latest earnings estimates and surprises on Zacks Earnings Calendar.

Conclusion: Hold SMTC Stock for Now

Although Semtech's significant decline in stock price due to a change in server rack architecture is concerning for investors, SMTC’s innovative products and growth across key segments like data centers and IoT make the stock worth retaining amid the selling frenzy. The stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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