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After a difficult stretch during the pandemic era, marked by supply chain snags and perpetual inventory issues, the semiconductor industry has gotten a shot in the arm from the mainstream adoption of artificial intelligence (AI). The rapidly expanding AI market, expected to grow at a compound annual growth rate of 36.6% through 2030, requires advanced chips with higher computing power, which has generated substantial demand and created new avenues for growth in the semiconductor space.
Microchip Technology (MCHP), a large-cap semiconductor stock that's making its own push into AI, fell last week after disclosing a cyberattack that disrupted operations at several manufacturing facilities. The attack, first detected on Aug. 17, forced the company to shut down some systems and scale back operations, leading to delays in fulfilling orders. However, at least one analyst suggests that this dip in MCHP could be a buying opportunity - and with a “Strong Buy” consensus on Wall Street, it seems most would agree.
About Microchip Technology Stock
Microchip Technology (MCHP) is a leading provider of microcontrollers, mixed-signal, flash-IP integrated circuits, and analog and interface products. These components are essential in various sectors, including automotive, industrial, aerospace, healthcare, energy storage, and consumer electronics. The company focuses on embedded control systems, which are compact, low-power computers specifically designed to execute targeted functions. With a market capitalization of $43.08 billion, Microchip Technology plays a pivotal role in driving innovation and efficiency in these sectors.
Microchip stock is down by 10.5% year-to-date, and has pulled back 20% from its May highs around the $100 level. Despite some choppy trading amid news of last week's cyberattack, the shares have rebounded about 12.5% from the YTD low of $71.76 set earlier this month.
Microchip is a dividend stock, with a 21-year history of consistent dividend growth. The most recent quarterly dividend was $0.454 per share on Aug. 22. MCHP's annualized dividend of $1.82 per share results in a dividend yield of 2.26%, significantly above the tech sector median of 1.50%.
During the June quarter, Microchip paid out $242.6 million in dividends, and returned another $72.7 million to shareholders through the repurchase of 0.8 million shares of common stock at an average price of $94.42 per share.
Microchip Technology Beats Q1 Earnings Estimates
On Aug. 1, Microchip Technology reported Q1 earnings results for the fiscal year 2025. Quarterly revenue reached $1.24 billion, a 45% decline from the previous year's quarter, and in line with Wall Street's estimates. Adjusted EPS of $0.53 narrowly exceeded consensus estimates.
The year-over-year drop in sales was largely attributed to a major inventory correction and reduced demand across several key market segments. This marks four consecutive quarters of declining revenue, with gross margins dropping from 68% to 60%.
“Despite the green shoots we observed last quarter developing slower than expected, we do see additional positive business signals, like an uptick in our Data Center business,” said CEO Ganesh Moorthy.
For the fiscal second quarter of 2025, management is anticipating net sales to range between $1.12 billion and $1.18 billion on adjusted EPS of $0.40 to $0.46.
Looking ahead, analysts forecast full-year EPS to fall 61.3% in fiscal year 2025 to $1.78, before improving to $3.17 in fiscal year 2026.
How AI is Driving Growth at MCHP
In anticipation of the rising demand for AI-enhanced solutions, Microchip has expanded its capabilities by incorporating advanced machine learning algorithms into its microcontrollers and FPGA products. Also, its AI-centric platform integrates seamlessly with its hardware, enabling developers to leverage machine learning at the edge.
During the second quarter, Microchip announced that it had acquired Neuronix AI Labs, which specializes in AI-based computer vision technologies. Neuronix AI's technology optimizes neural network efficiency, which is vital for developing power-efficient, AI-enabled edge solutions. This acquisition enhances Microchip’s offerings in AI-driven applications and is expected to advance its capabilities in image classification, object detection, and semantic segmentation applications on edge devices.
And on April 11, the company acquired VSI Co, a Seoul-based firm renowned for its innovative camera, sensor, and display connectivity technologies, which are essential for automotive networking solutions. This acquisition aims to bolster Microchip's presence in the automotive industry, particularly in the Advanced Driver-Assistance Systems (ADAS) sector.
MCHP also broadened its partnership with AI chip leader Taiwan Semiconductor Manufacturing (TSM) during the quarter to help strengthen its supply chain, with a focus on specialized capacity for Microchip at one of TSM's majority owned subsidiaries in Japan.
What Do Analysts Say About Microchip Technology Stock?
In a recent note, Citi analysts acknowledged the seriousness of the cyberattack at MCHP, but said it has no impact on their broader thesis regarding inventory and demand. The brokerage firm backed its “Buy” rating on MCHP, which is already a favorite among Wall Street analysts. Out of 22 covering the stock, 15 rate it a "Strong Buy," along with 1 "Moderate Buy" and 6 "Holds."
The average 12-month price target of $96.28 suggests a 19.2% upside potential to current levels.
The Bottom Line on MCHP Stock
Despite recent setbacks, Microchip Technology remains a compelling investment opportunity, offering an attractive entry point after its recent underperformance. Along with “green shoots” in the company's core business starting to break through, MCHP's robust dividend policy is highly appealing to investors seeking passive income, too. As the AI revolution continues, Microchip Technology is well-positioned to capitalize on the opportunity and keep rewarding shareholders, making this a solid semiconductor stock to buy on the dip.
On the date of publication, Nauman Khan 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 Policy here.
