Semtech's (SMTC) optical business is expected to remain its main near-term growth driver, with Active Copper Cable providing additional upside as deployments ramp, Morgan Stanley said in a Tuesday note.

Data center revenue reached a record $63 million in fiscal Q4, up 26% year over year. The revenue was driven by strong demand for Semtech's 800G FiberEdge transimpedance amplifier portfolio, which is expected to underpin growth in 2026, the analysts said.

Semtech's emerging technologies such as Active Copper Cable, 1.6T optics and linear equalizers are expected to add revenue soon. The brokerage said they remain cautious on these opportunities and added that the execution will be key as investor expectations rise.

The stock's valuation appears relatively high given that the data centers make up around 30% of Semtech's revenue. The strength of the segment is expected to continue, according to the note.

Morgan Stanley raised its revenue growth forecasts to 16% from 13.3% for 2026 and to 12.3% from 10.6% for 2027.

Morgan Stanley kept the company's stock rating at equal-weight and raised the price target to $89 from $85.

Price: 81.03, Change: -7.97, Percent Change: -8.96