Semtech (SMTC US) Key Takeaway • Rating: Maintain Buy, Target Price $162 (22x FY28E EPS) • F2Q revenue $341.9mn (+33% YoY, +17% QoQ), beat consensus. Non‑GAAP EPS $0.71 (vs consensus $0.61) • Non‑GAAP gross margin record at 54.5% (+150bps QoQ), driven by data‑center • F3Q guidance tops market estimates: revenue $410mn; non‑GAAP gross margin 58.3%; EPS $1.02‑1.08 • AI‑related demand ~3x current supply capacity；growth bottleneck: SiGe / InP wafer & OSAT packaging constraints • 1.6T CopperEdge ACC entered mass shipment to major hyperscalers in F2Q (moved from sampling to material revenue) • 1.6T FiberEdge TIA‑driver initial shipments started; target >50% share in target 1.6T market by end‑FY27E • Post HieFo InP laser acquisition: advancing vertical integration of TIA, driver & laser chips for supply resilience • Deepened MSA standardization work for LPO / NPO; secured multiple design wins, expanding long‑term TAM • Pulled explicit segment YoY growth guidance due to supply uncertainty, but multi‑year hyperscaler AI demand outlook remains solid • Forecast FY27E / FY28E / FY29E EPS: $3.60 / $7.40 / $11 #SMTC# #Semtech# #1#.6T #Optical# #AIInfrastructure#

Abstract - Semtech (SMTC) Initiated Buy on 1.6T and NPO • Initiates with Buy, $180 PT (25x FY28E P/E). • Transitioning from an analog chip company to an AI interconnect beneficiary w portfolio spanning ACC, TIA, drivers, lasers and NPO analog solutions. • Guides FY27 AI revenue >$350M; we forecast $466M (FY27E) → $1.22B (FY28E), driven by 1.6T. • Google TPU expansion to be a key catalyst for CopperEdge ACC. • NPO adoption could be the next major growth leg beyond 2027 as DSP removal increases analog content. • Believes NVIDIA and leading CSPs are evaluating NPO deployments. • NPO market size : we forecast 38M NPO optical engines in 2028, suggesting a multi-billion-dollar TIA/driver TAM • Acquisition of HieFo strengthens its laser portfolio and expands optical content opportunities. #AI# #Semiconductors# #OpticalNetworking# #SMTC#

Just some of my notes from $SMTC Q2 earnings: TLDR: Like $AAOI, it's all about Semtech expanding capacity - CEO said the capacity they've secured "may not be enough" for FY28... 1. Q2 upside is from 1.6T qualifying early - Pretty shocking (in a good way) how compressed the qualification timelines have become. - Hyperscalers and everyone upstream are pulling timelines forward so quickly rn. - We saw with $LITE, $COHR, $AAOI especially that demand is just bulldozing any qualification barriers. Now seeing the same with Semtech. 2. FiberEdge is quite underappreciated - I agree w/ mgmt that people are "overindexing on CopperEdge" - the better business is probably TIA/driver. - 800G TIA share has gone from ~18% two years ago to well over 50%, and they expect >50% share at 1.6T by January. - Impressive... - Industry 800G units: they entered the year on a ~50M forecast and are now hearing 80-90M vs. ~20M two years ago. - Impressive again... 3. Content per transceiver - goes from high single digits to $80-90 at 3.2T. - Quite funny - one analyst assumed that "high double digit" content meant teens. CEO corrected him with $80-90 lol. That's ~10x! - Photonics fab capacity goes 3-4x by year-end (they picked up a fully facilitated fab next to the existing one). - I don't think the market has modelled any of this. Even at half the claimed content, DC revenue stops scaling w/ transceiver units + starts scaling w/ units times content. - And every merchant InP line being tripled is another pointer that InP demand is way ahead of supply. - Which is the same signal $AAOI sent by clearing its HQ building for InP wafer expansion. 4. More capacity needed (obviously) - Secured capacity "may not be enough" especially 2H FY28. - Semtech are negotiating prepayments + joint capex with front/back-end partners, and qualifying additional OSATs to spread geopolitical risk. - Pricing: no erosion expected near term and none in the booked backlog. Cost increases are being passed through. Just what you wanna see :) 5. Gross margins are pretty insane - 54.5% in Q2 -> 58.3% guided -> 63.9% excl. the cellular module business being divested (closes Q4). - CFO framed ~64% as the post-close starting point. - I actually think 64% is the margin floor, not the target. Pretty sure they know they can do more lol. No reason to send out such a high target to the market otherwise. CEO also said that "we have the financial capability" to fund the FY28 capacity push": Looks like that's the case based on quick napkin maths: - FCF was $61M in Q2 - Q3 EBITDA guided to $134M - I'd say roughly $300M+ annualized FCF exiting the yr - Add $204M cash + $62M coming from Compal for the cellular module unit closing in Q4 So would be surprised to see any more dilution on top of what they already did a year ago. Overall though - pretty good earnings.

$SMTC ’s earnings today were pretty interesting given what I wrote before on Substack. My main point was never just that AI data center demand would push optical module volumes higher. What I cared about more was how much more Semtech could earn from each module as the market moves from 800G to 1.6T and eventually 3.2T. Today’s results seem to support the first part of that idea. Signal Integrity revenue grew 64% YoY, and Q3 revenue guidance came in at around $410M, well above expectations. Management also talked about strong bookings and record backlog, so the demand side clearly looks strong. The next thing I’m watching is content per module. After the HieFo acquisition, Semtech now has InP gain chips and lasers on top of its existing TIA and driver portfolio. At 800G, its content per module is only in the high single digit dollar range. At 3.2T, that could move to around $80. So for me, the first part of the thesis is starting to show up in the numbers. The second part, much higher content per module as 1.6T and 3.2T ramp, is still ahead.

All right back to $SMTC movie: "The bottleneck go Brrr": My favorite quote was: "availability currently matters more than pricing". In the current market for optical products. - No near-term erosion is expected on booked optical orders, which signals they're passing cost increases through fine. - I was actually curious most about Semtec's CW laser products after the HieFo takeover: Semtech expects CW-laser revenue for transceivers to begin H1 FY28. Explicitly said capacity is limited. They still seem materially further behind compared to the laser leaders, but they're making progress for 2027 ramp. - TIA and driver solutions remain in exceptionally strong demand (confirmed from $AAOI earnings). Continues to deepen engagement across all the leading hyperscalers. "We are now designing to every module provider", expected 50%+ market share for 1.6T FiberEdge (TIA + driver) by years end. Very strong statement to make about being majority market share. - 1.6T FiberEdge qualifications finishing earlier than expected (good read through for your pluggable makers eg. AOI) q: "quick thoughts on how long into 2028 does that backlog extend?" a: The backlog for the remaining of this fiscal year, I would say for our target is all booked. For the next year, we probably over 70% there. Management said current capacity may not be enough for fiscal 2028, especially in the second half (great demand visibility) Q2 revenue: - $341.9M vs. ~$329M expected - adjusted EPS was $0.71 vs. $0.61 Q3 guidance was most exciting: $410M revenue vs. ~$360M revenue $1.05 EPS vs. $0.73 EPS. yeah... just look at that beautiful revenue inflection Q/Q. So gigantic beat, great read through on 1.6T ramp. I don't own Semtec, but these were amazing earnings.

The AI bull run is just getting started and here is how you want to position before the biggest spending wave (Save this). The chart shows hyperscaler capital spending rising from $491 billion in 2025 to an estimated $950 billion in 2026 and $1.4 trillion in 2027 and by 2030, spending could reach approximately $3 trillion. The right side of the chart is especially important because analysts have continued raising their estimates. The 2026 forecast increased from $731 billion to $950 billion, while the 2027 estimate rose from $833 billion to $1.4 trillion which suggests the AI infrastructure buildout is happening faster and at a larger scale than previously expected. Now here is how you can benefit from all of this. Nvidia is the obvious beneficiary but investors should also look at the companies supplying the less visible parts of the AI ecosystem. Credo Technology makes high speed connectivity products that allow AI chips, servers, and switches to communicate while Astera Labs provides connectivity solutions that link CPUs, GPUs, memory, and storage inside AI servers. As AI clusters become larger, these companies could benefit from the need to move data faster between processors. Celestica manufactures and integrates servers, networking systems, and other data center hardware for large technology customers while Fabrinet produces complex optical and electronic equipment for other companies. These businesses may benefit as hyperscalers outsource more of the manufacturing required to build AI infrastructure. Applied Optoelectronics is a more direct optical networking play and it has announced a volume order for 1.6T data-center transceivers, which are designed to move data between next-generation AI systems. Coherent and Lumentum also provide lasers, photonics, and optical components used in high-speed networks. Semtech supplies signal conditioning and connectivity technology that helps preserve data quality as transmission speeds increase while Arista Networks and Cisco could benefit from selling the switches and networking systems that connect AI servers across data centers. Marvell is exposed to custom AI chips, networking, and optical connectivity and ass cloud companies develop their own AI processors, Marvell could benefit from helping them design and connect those systems. The power side of the buildout could create another group of winners. Advanced Energy Industries supplies power conversion systems used in data centers and semiconductor equipment while Modine provides thermal management products, while Vertiv supplies cooling, power, and data center infrastructure. This is exactly why we’re positioned across the entire AI infrastructure stack at Milk Road, not just there big names. If you want to see the trades we’re making around this spending wave, join us using this link.

GAVIN BAKER PORTFOLIO UPDATE This is what Gavin Baker's public stock portfolio looked like as of the end of Q2 - SpaceX $SPCX: 27,332,943 shares, $4.67B - Micron $MU: 711,364 shares, $821.1M - Meta Platforms $META: 402,770 shares, $226.9M - Cerebras $CBRS: 3,110,086 shares, $687.3M - Astera Labs $ALAB: 1,216,795 shares, $587.7M - Ciena $CIEN: 688,521 shares, $337.8M - Credo $CRDO: 1,129,285 shares, $307.1M - Palo Alto $PANW: 876,954 shares, $299.1M - Unity $U: 10,245,819 shares, $292.8M - Coherent $COHR: 642,101 shares, $253.3M - NVIDIA $NVDA: 1,249,291 shares, $250.0M - Amazon $AMZN: 969,629 shares, $231.1M - CoreWeave $CRWV: 2,124,845 shares, $211.5M - Google $GOOGL: 488,296 shares, $174.5M - Twilio $TWLO: 720,338 shares, $148.6M - Amphenol $APH: 640,069 shares, $112.9M - Akamai $AKAM: 910,583 shares, $107.6M - Affirm $AFRM: 1,273,050 shares, $103.8M - GitLab $GTLB: 3,373,169 shares, $103.0M - Intel $INTC: 663,802 shares, $92.7M - Semtech $SMTC: 551,214 shares, $89.2M - Cipher Digital $CIFR: 3,586,409 shares, $87.9M - Tesla $TSLA: 204,275 shares, $85.9M - Dick's Sporting Goods $DKS: 375,118 shares, $85.1M - Wayfair $W: 843,860 shares, $78.0M - Ambiq Micro $AMBQ: 877,123 shares, $77.4M - Samsara $IOT: 2,308,649 shares, $74.9M - ACV Auctions $ACVA: 9,903,239 shares, $71.2M - Compass $COMP: 5,658,421 shares, $69.8M - Wix $WIX: 1,458,458 shares, $66.2M - Mastercard $MA: 93,629 shares, $48.1M - PDF Solutions $PDFS: 658,536 shares, $46.6M - ServiceTitan $TTAN: 542,092 shares, $38.3M - Ferguson Enterprises $FERG: 147,759 shares, $35.1M - Nokia $NOK: 2,524,974 shares, $33.5M - Rogers Corp $ROG: 189,311 shares, $31.0M - Natera $NTRA: 104,385 shares, $28.3M - Warby Parker $WRBY: 698,903 shares, $21.2M - Veeco Instruments $VECO: 237,919 shares, $18.0M - Nebius $NBIS: 64,125 shares, $17.7M - INNIO: 348,696 shares, $13.8M - EquipmentShare $EQSH: 217,131 shares, $4.3M - Taboola $TBLA: 835,026 shares, $4.2M - Quantinuum $QNT: 39,853 shares, $3.3M - Fervo Energy: 9,959 shares, $0.3M - BitGo $BTGO: 29,611 shares, $0.15M Options contracts: - Invesco QQQ Trust put options $QQQ: 3,200,000 contracts, $2.36B - Meta Platforms call options $META: 1,200,000 contracts, $675.9M - Cerebras Systems call options $CBRS: 700,000 contracts, $154.7M

Samtech displayed their Co-Packaged Copper (CPC) set-up in the CPX form factor at Taiwan OCP (See the open CPX MSA here: Bandwidth exits the 6.4T pluggable optical engine via a copper connector interface. There are 128 connector pins per module corresponding to 64 differential pairs (DPs) or 32 lanes of 200G. We expect the CPX form factor to present a compelling opportunity for many copper interconnect companies such as TE, Amphenol and Molex even as we see bigger optics TAM in scale-up networking.