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

Microchip Technology MCHP shares have gained 29% in a year, underperforming the Zacks Computer & Technology sector’s return of 30.6%. The company is suffering from a challenging macroeconomic condition and a high inventory level. Microchip’s channel inventory decreased to 199 days at the end of the second quarter of fiscal 2026, and underutilization stood at $51 million. MCHP expects inventory at the end of the September quarter between 195 days and 200 days.

Can Expanding Portfolio Boost MCHP’s Prospects?

The company’s expanding portfolio is expected to boost its prospects. Recently, MCHP announced the release of its JANPTX family of non-hermetic plastic Transient Voltage Suppressor devices that meet the MIL-PRF-19500 qualification, offering high-reliability protection for aerospace and defense applications.

The company also launched a custom-designed software for its MEC1723 Embedded Controller, specifically designed to provide support for NVIDIA DGX Spark personal AI supercomputers. MEC1723 EC’s capabilities are optimized with the help of this software, which provides for system management of AI workloads on the NVIDIA DGX platform. 

Apart from managing power sequencing, alerts and system-level energy regulation, the MEC 1723 Embedded Controllers also handle critical firmware operations. The software is designed to support the next generation of notebook and desktop applications across industrial, data center and consumer markets.

AI Investment, Restructuring Plan to Boost MCHP’s Prospects

Microchip benefits from growing AI investments. The company’s Gen 4 and Gen 5 data center products are witnessing strong sales growth. Its new products are expected to gain traction with the launch of the industry's first 3-nanometer-based PCIe Gen 6 switch that powers modern AI infrastructure. These switches offer double bandwidth, lower latency, advanced security and high-density AI connectivity for next-generation cloud and data center performance.

The success of the restructuring plan also bodes well for MCHP’s prospects. The company announced the closure of Fab 2 manufacturing operations in May 2025 and began transferring the process technologies from Fab 2 to Fab 4 in Gresham, OR and Fab 5 in Colorado Springs, CO. It has paused capital expenditure plans for Fab 4 and Fab 5. Microchip is also right-sizing Fab 4 and Fab 5 through a layoff that will save $25 million annually.

MCHP’s Earnings Estimate Revision Shows Positive Trend

Microchip expects net sales of $1.185 billion for the third quarter of fiscal 2026. The expected net sales figure is well above MCHP’s original guidance of $1.109-$1.149 million provided on Nov. 6, 2025. The company revised its net sales guidance on Dec. 2, 2025, when it expected results to come in at the higher end of its original guidance. MCHP is set to report third-quarter fiscal 2026 results on Feb. 5.

The revised net sales guidance reflects a broad-based recovery in most of Microchip’s end markets, driven by improving inventory conditions at distributors as well as direct customers. The company saw strong bookings in December and expects further improvement in the March quarter.

The Zacks Consensus Estimate for third-quarter fiscal 2026 net sales is pegged at $1.18 billion, indicating year-over-year increase of 15.5%. The consensus mark for the fiscal third-quarter earnings is pegged at 40 cents per share, up by 2 cents over the past 30 days, indicating year-over-year jump of 100%.

Zacks Rank & Stocks to Consider

Microchip currently carries a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader sector are Micron Technology MU, Ciena CIEN and NVIDIA NVDA, currently sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rates for Micron Technology, Ciena and NVIDIA are currently pegged at 52.06%, 41.75% and 46.31%, respectively. Shares of Micron Technology, Ciena and NVIDIA have soared 264%, 184.6% and 38.7%, respectively, in a year.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

This article originally published on Zacks Investment Research (zacks.com).

Zacks Investment Research