These are crazy days in the chip space, with semiconductor companies struggling to secure the wafer, assembly, and test capacity they need and strong demand pushing lead times to new peaks. Supply constraints are likely to lead to a longer period of sustained high lead times than past cycles, but achieving a graceful dismount will be an industry-wide challenge.
Luckily, in the case of Microchip (MCHP) at least, there are strong underlying end-market drivers that can help patch over some of the likely oncoming volatility.
Microchip wasn't a favored name of mine when I last wrote about the stock in August, though "only" matching the SOX was still good for a nearly 40% move in the stock. As for the stocks I liked better, Lattice (LSCC), ON Semiconductor (ON), and Renesas (OTCPK:RNECY) have outperformed, Broadcom (NASDAQ:AVGO) has basically matched Microchip, and STMicroelectronics (STM) has underperformed.
Looking out at the sector now, valuations are stretched and it's hard for me to see how multiples rerate higher, particularly with revenue outperformance like constrained by supply/capacity issues. At best, I can see the order/lead-time situation leading to an extended peak, but the multiples across the space today are tough to embrace.
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