MCHP Rises 29% in a Year: How Should You Approach the Stock in 2026?

Core Insights - Microchip Technology (MCHP) shares have increased by 29% over the past year, lagging behind the Zacks Computer & Technology sector's growth of 30.6% [1] - The company is facing challenges due to a tough macroeconomic environment and high inventory levels, with channel inventory at 199 days and underutilization at $51 million [1] Product Expansion - MCHP's expanding portfolio is anticipated to enhance its market prospects, highlighted by the launch of the JANPTX family of non-hermetic plastic Transient Voltage Suppressor devices for aerospace and defense applications [2] - The company also introduced custom-designed software for its MEC1723 Embedded Controller, optimized for NVIDIA DGX Spark personal AI supercomputers, enhancing system management for AI workloads [3][4] AI and Restructuring Initiatives - The company is benefiting from increasing investments in AI, with strong sales growth in its Gen 4 and Gen 5 data center products, including the launch of a 3-nanometer-based PCIe Gen 6 switch that enhances AI infrastructure [5] - MCHP's restructuring plan includes the closure of Fab 2 and the transfer of process technologies to Fab 4 and Fab 5, with layoffs expected to save $25 million annually [6] Earnings Outlook - MCHP anticipates net sales of $1.185 billion for the third quarter of fiscal 2026, exceeding previous guidance of $1.109-$1.149 billion [7][10] - The revised sales forecast reflects a recovery in most end markets, driven by improved inventory conditions and strong bookings in December [8] - The Zacks Consensus Estimate for third-quarter fiscal 2026 net sales is $1.18 billion, indicating a year-over-year increase of 15.5%, with earnings expected to rise by 100% year-over-year [9]