Semtech (SMTC) could see its data center revenue reach a $200 million quarterly run-rate by fiscal Q1 2028, which should offset the revenue impact from the cellular module divestiture, UBS said in a Wednesday note.

The company's fiscal Q3 guidance calls for a 45% quarter-on-quarter growth and a 160% growth over last year in data center revenue, UBS said, adding that it is modeling full-year 2027 data center revenue to grow about 120% year-on-year.

Semtech's sale of the cellular module business is improving the company's gross margin profile by about 500 basis points, according to the note.

The company's fiscal Q3 revenue guidance of $405 million to $415 million was above UBS' pre-earnings call estimate of $376 million. Meanwhile, gross margin expectation was 230 basis points ahead of UBS estimate, resulting in EPS range of $1.02 to $1.08, higher than UBS view of $0.76, the note said.

UBS raised its price target to $230 from $225 and maintained its buy rating.

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