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Bull Of The Day: Semtech (SMTC)

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The pandemic has connected everyone and everything through digital technology. 2020 has been the most digitalizing year to date, with society forced to rely on technology for everything from work & entertainment to grocery shopping. The economy depends on connectivity and the Internet of Things (IoT) to function efficiently in the New Normal. It’s time to start adding chip makers at the forefront of IoT innovation into your portfolio.

Semtech (SMTC - Free Report) is a leading global supplier of signal semiconductors as well as a provider of cutting-edge infrastructure algorithms for high-end consumer and industrial equipment. This business has remained somewhat under investors’ radar since the dot-com bubble, but that is coming to an end with its recent big tech deals.

The company’s LoRa devices and wireless radio frequencies have been the business’s primary growth driver in 2020 and are the catalyzer for Zacks buy rating today. Semtech’s LoRa recently won the validation of tech giants like Cisco (CSCO - Free Report) and Amazon (AMZN - Free Report) , which is expected to drive significant growth in the coming years.

SMTC has been driving innovative growth since the 1960s when it was incepted. 2020 was the first year that these shares have materially exceeded its dot-com bubble high of $60 a share. This stock has a lot more room to run as the 4th Industrial Revolution commences, and the need for connectivity continues to surge.

Analysts have gotten increasingly optimistic about the growth trajectory after its announced team up with Amazon and have pushed up their long-term EPS estimates, driving SMTC into a Zacks Rank #1 (Strong Buy).

LoRa & The Amazon Effect

Amazon is slowly but surely taking over the tech world with its hand seemingly in every technology of the future. Its IoT investment is one that the company hopes will benefit from the increasingly digital & connected economy we live in and will drive substantial growth in the Roaring 20s.

Where Semtech comes in is with the Amazon Sidewalk, with its long-range and low-energy technology, aka LoRa powered devices, which is perfect for the IoT appliances that Amazon is employing. This technology is meant to make society ‘smarter’ securely.

According to Amazon’s website, “Amazon Sidewalk is a shared network, coming later this year, that helps devices like Amazon Echo devices, Ring Security Cams, outdoor lights, and motion sensors work better at home and beyond the front door. When enabled, Sidewalk can unlock unique benefits for your device, support other Sidewalk devices in your community, and even open the door to new innovations like locating items connected to Sidewalk.”

Analysts anticipate that Semtech’s partnership with Amazon will net the business $100 million in revenues annually within the next 5 years (nearly 1/5th of the business’s current yearly sales) as the Amazon Sidewalk technology gains traction. This deal gives Semtech’s LoRa technology the big tech seal of approval, and I am sure that its cutting-edge chips and expertise will be in strong demand in the coming years.

According to HIS Markit, the ‘smart home’ market is proliferating and is expected to reach $192 billion by 2023. This would represent an over 35% compounded annual growth rate. Semtech’s LoRa technology is poised to ride this rocket ship through the Roaring 20s.

LoRa is estimated to drive 40% annual growth over the next 5 years and stimulate $500 million in reoccurring revenue. This technology, combined with its smartphone and datacenter chips, will launch this ‘under the radar’ stock to the moon over the next decade.

Final Thoughts 

Yesterday’s broader market pullback may have provided us with the perfect entry point to ride this stock up to $88 per share, which is my next price target once we get past the $73.50 level (which could cause some resistance). 8 out of 10 analysts are currently calling this stock a buy today with no sell ratings.

The New Normal is one driven by connectivity, and Semtech’s LoRa technology for IoT has been provided with a sizable boon amid the devastative pandemic.

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