Last Update 10 Dec 25

Fair value Increased 0.38%

MCHP: 2026 Demand Recovery Will Offset Near-Term Guidance Weakness And Policy Uncertainty

Our updated narrative price target for Microchip Technology edges up to $73.92 from $73.64, as analysts balance recent target cuts and cautious near term guidance against expectations for a gradual demand recovery and resilient long term earnings power.

Analyst Commentary

Analysts remain divided on Microchip Technology, with recent target cuts reflecting near term execution risk even as longer term recovery expectations underpin valuation support.

Bullish Takeaways

Bullish analysts view the recent guidance softness as a temporary speed bump, with expectations for a more substantial demand recovery into 2026 that could reaccelerate revenue growth.
Despite lower targets, supportive ratings signal confidence that the company can sustain solid margins and cash generation through the downturn, helping to justify a premium to historical mid-cycle multiples.
Optimistic views emphasize disciplined capital allocation and consistent execution through prior cycles as reasons to expect earnings power to rebound as inventory and end-market conditions normalize.
The updated targets still sit meaningfully above current trading levels, suggesting perceived upside as the cycle turns and visibility on growth improves.

Bearish Takeaways

Bearish analysts highlight Q4 guidance that is below consensus and sequentially weaker, reinforcing concerns about a slower recovery timeline and potential downside to near term estimates.
Lowered price targets reflect pressure on valuation multiples as investors discount a more prolonged digestion phase in industrial and other cyclical end markets.
There is unease that continued near term topline softness could constrain operating leverage, making it harder for the company to reach prior peak earnings levels as quickly as previously expected.
Skeptics caution that if macro or demand conditions deteriorate further, the current reset may not be sufficient, leaving room for additional estimate and target revisions.

What's in the News

U.S. officials are signaling that previously flagged 100% tariffs on imported semiconductors may be delayed, easing immediate trade risk for U.S. based chipmakers including Microchip as the administration reassesses its approach to China (Reuters).
Conflicting messaging from Washington on semiconductor tariffs continues, with multiple reports that long promised levies might not be implemented soon, reducing near term uncertainty for Microchip and peers while leaving longer term policy risk unresolved (Reuters).
U.S. export controls are driving acute shortages of advanced chips in China, prompting Beijing to intervene in local chip allocation, a dynamic that could reshape global demand patterns and supply chain planning for suppliers such as Microchip (Wall Street Journal).
China has suspended some export controls on key chip making minerals like gallium and germanium for a year, a move that could ease raw material constraints and cost pressures across the semiconductor supply chain, including for Microchip (New York Times).
Beijing has ordered state supported data centers to rely on domestic AI chips and remove foreign alternatives where projects are under construction, underscoring structurally rising competitive and demand risk for foreign semiconductor vendors such as Microchip in China (Reuters).

Valuation Changes

Fair Value has risen slightly, moving from $73.64 to $73.92, which implies a modest increase in the assessed intrinsic price target.
Discount Rate has fallen slightly, from 11.31% to approximately 11.07%, which signals a marginally lower required return in the valuation model.
Revenue Growth has risen very slightly, with the long term growth assumption nudging up from about 16.09% to 16.12%.
Net Profit Margin has edged down slightly, from roughly 22.27% to 22.14%, which reflects a small reduction in longer term profitability expectations.
Future P/E has risen marginally, increasing from about 37.9x to 38.0x, which indicates a modestly higher multiple applied to forward earnings.

Broad-based end-market recovery and adoption of AI and edge computing are driving increased demand and incremental revenue for Microchip's product portfolio.
Automotive electrification, operational efficiency improvements, and domestic manufacturing position Microchip for sustained long-term profit growth and resilience against global disruptions.
Persistently high inventory, substantial debt, muted automotive recovery, and intensifying competition in advanced products threaten margins, growth, and capital allocation flexibility.

Catalysts

About Microchip Technology

Develops, manufactures, and sells smart, connected, and secure embedded control solutions in the Americas, Europe, and Asia.What are the underlying business or industry changes driving this perspective?

Microchip is experiencing a broad-based recovery in key end-markets-such as industrial, automotive, data center, and defense-following a prolonged period of inventory correction; management believes shipments remain below normalized end demand, setting up for continued above-seasonal revenue growth as inventories are replenished over the coming quarters.
The accelerating adoption of edge computing and proliferation of AI-enabled, connected devices is fueling demand for Microchip's portfolio of microcontrollers, analog, and FPGA solutions-including recent design wins in AI/data center infrastructure and the expansion into secure, power-efficient edge AI products-supporting incremental revenue opportunities as these trends continue.
Structural tailwinds from the ongoing electrification and automation in transportation, including increased EV penetration and the roll-out of advanced driver-assistance systems (ADAS), underpin higher content per vehicle and expanded market share for Microchip's automotive segment, signaling a catalyst for sustained long-term revenue and gross margin improvement as auto demand normalizes.
Operational leverage is set to improve as inventory write-offs and factory underutilization charges decline, with management targeting a return to 65% non-GAAP gross margins; as factory utilization ramps beginning in the December quarter and charges subside, incremental profits are expected to flow disproportionately to operating income and earnings.
Microchip's high exposure to U.S.-based manufacturing and ongoing vertical integration position the company to benefit from onshoring-related policy support and potential tariff exemptions, offering relative protection against geopolitical disruptions and cost pressures that could erode profitability for more offshore-reliant competitors, thus supporting net margins.

Microchip Technology Earnings and Revenue Growth

Microchip Technology Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Microchip Technology's revenue will grow by 15.9% annually over the next 3 years.
Analysts assume that profit margins will increase from -4.2% today to 21.8% in 3 years time.
Analysts expect earnings to reach $1.4 billion (and earnings per share of $2.56) by about September 2028, up from $-178.4 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting $1.9 billion in earnings, and the most bearish expecting $693 million.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.6x on those 2028 earnings, up from -195.9x today. This future PE is greater than the current PE for the US Semiconductor industry at 33.5x.
Analysts expect the number of shares outstanding to grow by 0.5% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 10.62%, as per the Simply Wall St company report.

Microchip Technology Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

Microchip continues to carry elevated inventory levels and is experiencing ongoing inventory write-offs and factory underutilization charges, which are expected to persist for multiple quarters; prolonged high inventory and sluggish normalization could suppress gross margins and negatively impact earnings.
The company has high financial leverage, with a net debt to adjusted EBITDA ratio of 4.2 at quarter end and stated prioritization of debt repayment before resuming share buybacks; substantial debt obligations and interest expenses may constrain net margins and limit capital allocation flexibility.
Much of the current growth appears to be a rebound from severe inventory corrections and supply chain deficits, rather than clear secular end-market expansion; once channel inventories normalize, revenue growth may slow to or below industry rates, impacting top-line momentum.
The automotive segment, a critical long-term growth driver, is still lagging in recovery compared to other end markets; if weakness persists or if secular trends shift (e.g., OEMs increasing vertical integration), Microchip's revenue from this segment could remain under pressure.
Intensifying competition and customer demand for more advanced 32-bit microcontrollers and system-on-chip solutions may threaten Microchip's historically strong position in mature 8
and 16-bit microcontrollers; insufficient innovation or delayed product transitions could lead to share loss and slower revenue growth in the long term.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $76.917 for Microchip Technology based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $90.0, and the most bearish reporting a price target of just $60.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $6.6 billion, earnings will come to $1.4 billion, and it would be trading on a PE ratio of 39.6x, assuming you use a discount rate of 10.6%.
Given the current share price of $64.76, the analyst price target of $76.92 is 15.8% higher.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

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Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Industrial, Automotive, And Edge Computing Trends Will Drive Future Recovery