This AI Optical Chip Stock Is Climbing Back

30‑Second Take

Why now? MACOM designs analog chips that sit inside AI data center optical links, defense radar and telecom gear. Every time a hyperscaler adds bandwidth between racks, MACOM parts are on the bill of materials.

BMO Capital upgraded the stock to Outperform on September 18 with a $335 price target, arguing the selloff had gone too far. The stock has rallied hard since, including a jump of roughly 7% on Friday after a weak jobs report pulled Treasury yields lower and lifted chip stocks.

It's still more than 20% below its May high, and the fiscal fourth quarter (which ended October 2) is the next checkpoint.

Trade Setup

Timeframe: Swing to medium-term (3 to 6 months)
Edge type: Recovery momentum into an earnings catalyst in a secular growth lane

Here's the frame. The easy bounce off the September low is behind it, and the stock is now trading close to BMO's target. So this isn't a bottom-fishing trade anymore.

It's a bet that the next report shows the data center business is still growing fast enough to push the stock back toward its highs.

Management guided fiscal Q4 revenue to $415 million to $425 million, with adjusted earnings of $1.97 to $2.03 per share. A clean beat and a strong outlook would be the catalyst. A miss would likely send it back toward the September lows.

Snapshot Table

Chart

1-Month Trading Summary: MTSI is up about 24% over the past month and more than 80% year to date. It bottomed around September 15 after a slide of more than 40% from its May peak near $419, then climbed back as the BMO upgrade landed and chip stocks recovered.

The last two sessions of the week did most of the work, adding about 13% combined, with Friday's 7% gain coming as Treasury yields eased after the September jobs report. That leaves the stock well off its lows but still roughly 20% below the high.

Bull Case 

Why It Works

MACOM's chips sit inside the AI networking layer: drivers, amplifiers and lasers that move data between servers. As data centers shift from 400G to 800G and 1.6T optical links, the amount of MACOM content per rack goes up.

Hyperscalers can't keep stacking GPUs into racks without upgrading the gear that lets those chips talk to each other at full speed. That's the demand MACOM is selling into.

The Catalysts

The fiscal Q4 report is the big one. The quarter closed October 2, and management has already put a revenue range of $415 million to $425 million on the table, so a beat would be easy to measure.

MACOM also used last week's European Microwave Week to show a new 3.2-terabit optical chipset for AI data center links, which gives management something new to talk about on the call.

Defense is the second engine. MACOM supplies chips for radar, electronic warfare and secure communications, which gives it a steadier base than a pure AI supplier.

What The Numbers Say

At roughly 39 times forward earnings, you're paying a growth multiple. That's the price of exposure to two durable spending themes, AI networking and defense electronics.

The stock is already close to BMO's $335 target, so the next leg needs new estimate increases, not just a sentiment rebound.

Bear Case 

What Could Break It

Semi cycles turn fast. Alphabet, Microsoft and Amazon all report in late October, and if their AI spending plans come in softer than expected, every AI supplier gets hit. A single bad hyperscaler print can take 10% to 15% off a stock like this in a day.

The Valuation Risk

At nearly 39 times forward earnings, a lot of good news is already priced in. If growth slows even modestly, that multiple can shrink quickly.

After a roughly 24% run in a month, the stock has also lost its margin of safety. Some of the upside you'd be buying has already happened.

How To Size It

The 52-week range runs from about $122 to $419, and this stock moves almost twice as much as the market. Size it with that in mind.

Start with a half position. Add only if the fiscal Q4 report and guidance confirm the data center ramp, and use a hard stop below the late-September lows.

Don't chase a gap higher. Don't oversize.

Quick Checklist 

✅ Fiscal Q4 report date confirmed (quarter ended October 2)
✅ Data center revenue growth checked against guidance
✅ Hyperscaler capex commentary reviewed in late October
✅ Position sized for a stock that moves about twice as much as the market

Deep‑Dive Links

• Latest earnings report

• Analyst ratings and price targets

• Short interest data

• Company profile and investor relations

That’s all for today’s Everyday Alpha. We’ll have a new pick for you every morning before the market opens, so stay tuned!

Best Regards,
—Noah Zelvis
Everyday Alpha