Microchip Technology Standing Out As The Cycle Turns

As the semiconductor boom rolls over, product and market exposure matters more, and that should benefit Microchip (NASDAQ:MCHP) at least to some extent. While the company doesn't have the high-end data center or auto exposure that I believe will serve companies like Broadcom (AVGO), Marvell (MRVL), or onsemi (ON) better over the next 12 months, Microchip does at least have limited exposure to weakening consumer markets, as well as stronger exposure to capacity-constrained specialized components like MCUs and FPGAs.

Microchip shares are down since my last update, but have nevertheless meaningfully outperformed the broader SOX index. Given the outperformance and the market/product mix, I find Microchip more of a "middle option" between beaten-down names with more near-term vulnerability (like companies with high smartphone exposure) and companies with stronger near-term leverage in the data center or EVs (Broadcom, et al). I like what I see as double-digit long-term annualized return potential from here, though, and the valuation makes this a name to consider now.

 

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Microchip Technology Standing Out As The Cycle Turns