Lattice (LSCC): Revenue +62%, A Clean Beat — And Our Call Is SELL. Is LSCC Stock a Buy?

Lattice Semiconductor Corporation (LSCC) Q2 2026 — Reported Aug 4, 2026 AFTER the close (call 5:00pm ET) for fiscal Q2 2026, the quarter ENDED JULY 4. Revenue $201.1M, +62.2% YoY, vs ~$185.5M consensus and a $175-195M guide - above its own HIGH end. Non-GAAP EPS $0.53 vs $0.44 expected, guide $0.42-$0.46. GAAP EPS $0.14. LSCC closed $138.00, +8.5% - but that move is PRE-print. Lattice printed a record quarter and we could not break it: revenue +62%, a 20% non-GAAP EPS beat, no AMI revenue in the period, share count UP not down, and the tax rate worth half a cent. It is an excellent print. Then we valued it. Expense the $50.3M of stock compensation - 25% of revenue - and owner free cash flow is $31M, not the $81.3M reported. At $138 the price needs owner earnings compounding 21.7% a year for TEN straight years. Our number is ~$70. THE CALL: SELL (3/5, A GREAT QUARTER AT A PRICE THAT NEEDS TEN MORE) — base-case value ~$69.0 vs ~$138.0 today. KEY METRICS: - CALL: SELL 3/5, fair value ~$70 vs $138.00 - about 49% BELOW the price. Ten-year owner-earnings DCF: FY2027E revenue $1,304M at a 71.5% gross margin less 28.5 pts of opex = $561M non-GAAP EBIT, less $176M of stock comp, less interest on the $925M term loan and a 15% tax = $271M owner FCF; grown 24/20/17/14/12% then 10/8/7/6/5%, 3% terminal at 9.5% = a $10.62B enterprise, less $0.78B pro-forma net debt, over 142.0M shares = $69. Bear $34, bull $114. Only ONE of nine grid cells reaches $138. - THE BEAT IS REAL - WE RAN THREE CHECKS. (1) No AMI: the $1.65B deal closed July 27, 23 days AFTER the quarter ended; goodwill is $315.4M, unchanged to the dollar from January, and there were NO borrowings at July 4. (2) No buyback: diluted shares rose 140.2M vs 137.6M, UP 1.9% - non-GAAP net income +128% vs EPS +121%, the gap IS dilution. (3) No tax trick: non-GAAP tax 4.3% vs 5.4% last year, worth half a cent. Non-GAAP opex $67.1M came in ABOVE their own $67M ceiling and they still beat by 20%. - THE COST NOBODY DEDUCTS: non-GAAP operating income $77.1M vs GAAP $22.4M. Of that $54.7M gap, $50.3M is stock comp ($44.9M) plus incentive pay settled in shares ($5.4M) - 25.0% of revenue. Reported FCF $81.3M (40.4% margin) less $50.3M = $31.0M, a 15% margin, ~$124M annualised against a $19.60B market cap. And it is not abstract: LSCC paid $29.7M CASH in H1 for RSU tax withholding, twice the $15.0M of buybacks, so the share count ROSE. - READ THE GUIDE SEQUENTIALLY, NOT YoY. Q3 midpoints, all non-GAAP: revenue $255M vs $201.1M = +26.8%. Gross margin 69.5% vs 71.7% = -220bp. Opex $86.5M vs $67.1M = +28.9%. That implies operating income $90.7M vs $77.1M = +17.6%, margin 35.6% vs 38.3%. And EPS $0.56 vs $0.53 = +5.7%. Revenue +27%, profit +18%, earnings +6%. The wedge is ~$9M of interest on the $925M term loan drawn July 27, about 6 cents a share. AMI buys revenue, not much first-quarter profit. - MIX, CONCENTRATION AND THE BALANCE SHEET: Compute & Communications $126.0M (+83%, now 63% of revenue vs 55%); Industrial & Embedded $75.1M (+36%). Asia +92% 'primarily due to hyperscaler demand' and now 79% of revenue; Americas -14%, down to 12% from 22%. Distribution is 95% of revenue vs 84%, and the two largest distributors are 49% and 39% of net receivables. Inventory days 153 (vs 218 a year ago but 151 last quarter). At July 4: $173.3M cash, ZERO debt. Three weeks later: $925M drawn. STREET: consensus Strong Buy, $121.12 average target - already 12% BELOW the $138 close. We DIFFER. What to watch: Changes our mind UP: stock compensation under 15% of revenue for two straight quarters, or AMI gross margin above 75% with combined non-GAAP operating margin holding 40%, or the Americas returning to growth. Confirms the bear: inventory days back above 180, a distributor cutting orders, or non-GAAP gross margin below 68%. Hard rule: if net leverage passes 2.5x EBITDA we cut to a stronger sell. We would buy under $75. We are NOT recommending shorting it. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.