Semtech (SMTC) is seeing accelerating momentum in its AI-driven optical business, Morgan Stanley said in a note Wednesday.

The strong demand trend is supporting a higher fiscal 2027 data center growth outlook, the investment firm said.

The company posted a strong quarter. Data center revenue reached a record $71.6 million, up 14% quarter on quarter and 39% year on year, the note said.

Morgan Stanley highlighted that management commentary pointed to materially improved visibility, supported by strong bookings and backlog.

The firm noted that while management previously guided to more than 50% fiscal 2027 data center growth, it now sees potential for the business to approach a doubling on a year-on-year basis. This compares with its prior estimate of around 60% growth.

Semtech's LoRa business also remained strong. Revenue came in at $44.5 million, up 12% quarter on quarter and 14% year on year. Favorable supply-demand dynamics continue to support pricing, according to the note.

Morgan Stanley kept its equal-weight rating on Semtech and raised the company's price target to $175 from $155.

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