Semtech (SMTC) faces near-term tailwinds from data center growth opportunity, Morgan Stanley said in a Wednesday report.

The company is on track to record growth in Q4 from the ramp of its active copper and linear optics segment, according to the research note.

The brokerage said it models 13.6% and 8.6% revenue growth in 2025 and 2026, respectively, from 11% and 7% expected earlier, reflecting robust data center growth. Analysts also increased their EPS estimates for CY2025 and CY2026 to $1.66 and $2.02, respectively.

While cellular IoT Q1 revenue fell 8% on quarter amid expected seasonality, bookings increased as the company stands to benefit from competitors exiting the space. Although the brokerage said it expected IoT to be a divestment target, macroeconomic volatility could delay deals.

Despite considerable data center prospects, the brokerage said it sees a "balanced risk/reward," given macro uncertainty and broad analog exposure.

Morgan Stanley said it reiterated its equalweight rating on the stock and increased its price target to $43 per share from $40.

Price: 35.90, Change: -2.88, Percent Change: -7.43