Dj Microchip Technology Inc. Stock Falls Thursday, Underperforms Market

Microchip Technology MCHP is expanding its portfolio with a significant update to its IGBT 7 devices offered in different packages, multiple topologies, and current and voltage ranges.

The new portfolio is tailored for high-growth sectors, including sustainability, e-mobility and data centers, and is designed to meet the growing demands for high efficiency, compact size and enhanced performance in power electronics.

Designers can choose from IGBT 7 devices in standard D3 and D4 62 mm, and SP6C, SP1F and SP6LI packages, with configurations that include NPC, three-phase bridge and boost/buck chopper.

Microchip Technology offers a wide range of power management solutions, including analog devices and silicon and silicon carbide technologies. With rising demand for energy-efficient systems, MCHP is well-positioned to benefit from growing market segments like e-mobility, data centers and sustainability.

The IGBT 7 devices offer a combination of ease of use, cost efficiency and high power density, and are suitable for both general industrial uses, and specialized aerospace and defense applications.

Microchip Technology Incorporated Price and Consensus

Microchip Technology Incorporated price-consensus-chart | Microchip Technology Incorporated Quote

MCHP Shares Underperform Industry & Sector

Microchip Technology’s shares have lost 26.2% year to date, underperforming the broader Zacks Computer & Technology Sector’s appreciation of 30% and the Zacks Semiconductor - Analog and Mixed industry’s decline of 2%.

MCHP's share price decrease has been influenced by a drop in sales growth. Notably, sales fell 48.4% year over year to $1.164 billion in the second quarter of fiscal 2025.

The decline in sales was due to ongoing customer destocking and weak demand across end markets, particularly in the consumer and automotive sectors, with a sequential drop of nearly 22%. This factor is expected to hurt top-line growth in the near term.

Despite a strong portfolio, weak top-line growth is expected to drag down MCHP shares in the near term.

Microchip Technology Q3 Guidance Implies Slower Growth

For the third quarter of fiscal 2025, MCHP expects net sales between $1.03 billion and $1.10 billion.

The Zacks Consensus Estimate for third-quarter fiscal 2025 sales is pegged at $1.06 billion, indicating a year-over-year decline of 39.87%.

Non-GAAP earnings per share are expected between 25 cents and 35 cents for the third quarter of fiscal 2025.

The consensus mark for MCHP’s third-quarter fiscal 2025 earnings is pegged at 32 cents per share, down 33.33% over the past 30 days. The estimate suggests a 70.37% year-over-year decline.

MCHP’s Zacks Rank & Valuation

Microchip Technology currently carries Zacks Rank #5 (Strong Sell), which implies that investors should stay away from the stock for the time being.

MCHP’s Value Score of F indicates a stretched valuation at this moment.

Stocks to Consider

Amphenol APH, BILL Holdings BILL and Fortinet FTNT are three better-ranked stocks from the broader sector. The three stocks currently sport Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rates for Amphenol, BILL Holdings and Fortinet are pegged at 16.39%, 13.41 and 17.76%, respectively.

Zacks Investment Research

The artificial intelligence (AI) megatrend has surged across markets over the last two years, generating substantial wealth for investors. With momentum showing no signs of slowing amid ongoing investments from hyper-scalers, the AI market is expected to maintain its strong growth trajectory - and semiconductors have been a major beneficiary.

Semiconductor chips are often considered the “picks and shovels” of AI technology. Specialized chips are essential for all AI platforms, serving as the “engine block” that delivers the necessary processing power and efficiency. With a projected compound annual growth rate (CAGR) of 14.9% from 2024 to 2032, the global semiconductor market is set to reach an impressive size of $2.06 trillion, underscoring the vast potential ahead for this sector.

But after a few tough earnings reports from semiconductor companies this Q3 season, some top players have pulled back sharply. Ahead of an expected revival in demand for the industrial and automotive end markets next year, though, Citi analyst Christopher Danely thinks that now is a good time for investors to “get aggressive” on chip stocks.

"We estimate global semi sales to be up another 9% YoY in 2025, following 17% YoY growth in 2024," wrote the analyst, who has “Buy” ratings on all five of the semiconductor stocks highlighted below.

1. Broadcom

Founded in 1991 and based in San Jose, Broadcom is one of the leading semiconductor companies in the world. With a massive market cap of $823 billion, Broadcom designs, develops, and supplies a wide range of analog and digital integrated circuits (ICs) and related products, as well as software for data center networking.

AVGO stock is up 56.7% on a YTD basis, and offers a dividend yield of 1.20%, backed by 14 years of consistent growth.

The S&P 500 Index today is up +0.04%, the Dow Jones Industrials Index is up +0.27%, and the Nasdaq 100 Index is down -0.32%.

Stock index futures today are mixed. The broader market initially moved higher today after US October consumer prices rose as expected. Stocks also found support, and T-note yields fell on dovish comments from Minneapolis Fed President Kashkari, who said inflation is headed in the right direction and he doesn't think inflation is stuck above the Fed's 2% target.

However, the weakness in chip stocks is limiting gains in the overall market. Also, hawkish comments from Dallas Fed President Logan weighed in stocks when she said, "I anticipate the FOMC will most likely need more rate cuts to finish the journey," but policymakers should "proceed cautiously" given uncertainties about how restrictive monetary policy currently is.

US Oct CPI rose +0.3% m/m and +2.6% y/y, right on expectations. Oct CPI ex-food and energy remained unchanged from Sep at +3.3% y/y, right on expectations.

US MBA mortgage applications rose +0.5% in the week ended November 8, with the purchase mortgage sub-index up +1.9% and the refinancing sub-index down -1.5%. The average 30-year fixed rate mortgage rose +5 bp to 6.86% from 6.81% in the prior week.

Stocks have rallied sharply over the past week, with the S&P 500, Dow Jones Industrials, and the Nasdaq 100 posting new record highs on speculation President-elect Trump will boost corporate profits through tax cuts and reduced regulation.

The markets are looking ahead to Friday’s report on retail sales, which will be looked at to see if consumer spending is holding up. Oct retail sales are expected to be up +0.3% m/m, and Oct retail sales ex-autos are also expected to be up +0.3% m/m. Also, the Q3 earnings season is wrapping up, with more than 50 companies scheduled to report quarterly results this week.

Of the 85% of companies in the S&P 500 that have released Q3 earnings so far, 75% surpassed the estimates, slightly below the 3-year average. According to Bloomberg Intelligence, companies in the S&P 500 have reported an average +8.4% y/y increase in quarterly earnings in Q3, more than double the preseason forecast.

The markets are discounting the chances at 82% for a -25 bp rate cut at the December 17-18 FOMC meeting.

Overseas stock markets today are mixed. The Euro Stoxx 50 fell to a 3-month low and is down -0.71%. China's Shanghai Composite Index closed up +0.51%. Japan's Nikkei Stock 225 fell to a 1-week low and closed down -1.66%.

Interest Rates

December 10-year T-notes (ZNZ24) today are up by +6 ticks. The 10-year T-note yield is down -0.8 bp to 4.420%. T-notes are moving moderately higher after today’s US October consumer price report was right on expectations, easing inflation concerns. The benign CPI report boosted the chances of a 25 bp rate cut by the Fed next month to 82% from 62% before the report. Also, dovish comments from Minneapolis Fed President Kashkari gave T-note a boost when he said that inflation is headed in the right direction. T-notes fell back from their best levels after European government bond yields rose and after Dallas Fed President Logan said policymakers should "proceed cautiously" on further rate cuts.

European government bond yields today are moving higher. The 10-year German bund yield is up +2.0 bp to 2.382%. The 10-year UK gilt yield is up +1.9 bp to 4.518%.

ECB Governing Council member and Bundesbank President Nagel said core inflation is still quite high, and there are still noticeable price pressures, especially in services. He added that President-elect Trump's tariff plans could cost Germany 1% of GDP and could cause economic contraction.

Swaps are discounting the chances at 100% for a -25 bp rate cut by the ECB at its December 12 policy meeting and at 23% for a -50 bp rate cut at the same meeting.

US Stock Movers

Albemarle is up more than +6% to lead gainers in the S&P 500 after RBC Capital Markets raised its price target on the stock to$133 from $108.

Charter Communications is up more than +4% after agreeing to buy Liberty Broadband in an all-stock transaction.

Cava Group is up more than +10% after reporting Q3 restaurant comparable sales rose +18.1%, stronger than expectations of +12.4%, and raised its full-year restaurant comparable sales to +12%-13% from a previous forecast of +8.5%-9.5%, well above the consensus of +9.95%.

Rivian Automotive is up more than +21% after Volkswagen AG raised its investment plans in the company by $800 million.

Spotify Technology is up more than +9% after forecasting Q4 monthly active users of 665 million, stronger than the consensus of 660.73 million.

Pure Storage is up more than +4% after Oppenheimer & Co initiated coverage on the stock with a recommendation of outperform with a price target of $70.

Rockwell Automation is up more than +3% after BNP Paribas Exane initiated coverage on the stock with a recommendation of outperform with a price target of $345.

Emerson Electric is up more than +1% after BNP Paribas Exane initiated coverage on the stock with a recommendation of outperform with a price target of $155.

Chip stocks are under pressure today to weigh on the overall market. ARM Holdings Plc and KLA Corp are down more than -3%. Also, Micron Technology , ON Semiconductor , and Lam Research are down more than -2%. In addition, Advanced Micro Devices , Texas Instruments , Applied Materials , Analog Devices , Marvell Technology , Microchip Technology , and Qualcomm are down more than -1%.

Super Micro Computer is down more than -4% to lead losers in the S&P 500 and Nasdaq 100 after saying it is unable to file its quarterly report on form 10-Q for the period ended September as it needs time to find a new auditor.

Skyworks Solutions is down more than -4% after forecasting Q1 revenue of $1.05 billion-$1.08 billion, weaker than the consensus of $1.09 billion.

Groupon is down more than -23% after reporting Q3 revenue of $114.5 million, below the consensus of $118 million, and forecast full-year revenue of $486 million-$493 million, weaker than the consensus of $507.3 million.

Maplebear Inc is down more than -12% after forecasting Q4 adjusted Ebitda of $230 million-$240 million, below the consensus of $244.4 million.

Rocket Cos is down more than -10% after forecasting Q4 adjusted net revenue of $1.05 billion-$1.20 billion, well below the consensus of $1.32 billion.

Caterpillar is down more than -1% to lead losers in the Dow Jones Industrials after Evercore ISI downgraded the stock to underperform from in line with a price target of $365.

Tesla is down more than -1% after Phillip Securities downgraded the stock to sell from reduce with a price target of $230.

Earnings Reports (11/13/2024)

Cisco Systems Inc (CSCO), Loar Holdings Inc (LOAR), NU Holdings Ltd/Cayman Islands (NU), Tetra Tech Inc (TTEK).

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policyhere.