What happened

Shares of chip-design outfit Lattice Semiconductor (LSCC -3.96%) jumped 18% higher in the last week, according to data provided by S&P Global Market Intelligence.

This has been a top-performing name in the chip industry this year. Adding the recent run higher to the total, Lattice Semi is now up 79% year to date, and up a stunning 330% from the start of 2020.

Two people in an office are wearing lab coats and working on computer hardware.

Image source: Getty Images.

So what

Lattice has, in fact, been on a tear for a few years now, as it's sharpened its focus on developing leading field-programmable gate array (FPGA) chips -- a semiconductor type pioneered by Xilinx, which is soon to be acquired by AMD.

LSCC Chart

Data by YCharts.

Third-quarter 2021 results underpin the company's success. Revenue grew 28% year over year to $132 million. And thanks to record adjusted operating-profit margins, adjusted net income per share surged 47% higher to $0.28.

Lattice reports that it's enjoying record demand across its portfolio of hardware designs, including those for data centers, 5G network infrastructure, and vehicles. With a global chip shortage making many device manufacturers scramble to find enough components, Lattice's flexible FPGAs can step in and fill a number of roles in a larger computing system, since they aren't generally custom-configured for a specific purpose.

Now what

Investors are optimistic that the small firm's expansion will continue for some time. Guidance for Q4 2021 implies revenue will increase another 25% year over year, with adjusted earnings growing at nearly double that rate. With tech-hardware order lead times extending well into 2022, Lattice's run could be far from over.

As the company often points out, part of its long-term strategy to win over more customers, and software is making up a larger share of its computing system designs; hardware is only part of the story. Once a computing engineer puts various parts together, software is needed to program a computing system. Lattice has been upping its game on this front to make its FPGAs even easier to implement, and help its customers get to market faster.

It's had an impressive growth story the last few years, but Lattice's momentum is pretty well priced into the stock at this point. It currently trades for 91 times trailing-12-month free cash flow following the Q3 report. Then again, if this small but highly profitable semiconductor design company can continue winning market share in its growing end markets, that may not be such a terrible price to pay for its potential years down the road.