Chip stocks rallied strongly in 2025, driven by AI and memory trends. The Philadelphia Semiconductor index jumped more than 40% as investors anticipated increased data-center spending. Mizuho noted that AI infrastructure buildouts, wafer-fab equipment cycles, and memory upgrades should sustain the momentum.
Within this bullish market, Microchip Technologies stands out. Its stock has climbed more than 32% over the past year. Optimism around the company received another boost after Mizuho named Microchip as one of its key semiconductor outperformers for 2026, citing its exposure to wafer fabrication and AI-driven demand.
With valuations still considered reasonable across parts of the U.S. chip sector, investors are now weighing whether Microchip stock can maintain its upward trajectory.
Microchip is a broad-line semiconductor firm specializing in embedded controllers, microcontroller units, and analog and mixed-signal chips. Its "Total System Solutions" approach targets high-growth markets such as automotive, IoT, and data centers.
The company has pursued product launches targeting the AI cycle. In late 2025, it unveiled the industry's first 3nm PCIe Gen6 switch chip for high-speed AI connectivity. It also announced custom firmware for Nvidia's DGX Spark AI supercomputers, tailoring its MEC1723 embedded controller for secure boot and power management in Nvidia's AI servers.
Through 2025, the stock has outperformed many peers. It trades at about $74 currently, near its 52-week high of $77.20. Its 50-day moving average is below the current price, indicating continued positive momentum.
However, this rally comes with a rich valuation. Microchip's adjusted price-to-earnings ratio sits at roughly 125 times, meaningfully above the sector median for semiconductor peers. The market is bidding up the stock relative to many chipmakers, implying lofty expectations for growth.
Microchip recently reported a double-beat quarter. The company posted net sales of $1.14 billion, topping forecasts. Revenue was down about 2% from a year ago but climbed 6% sequentially, a sign conditions may be stabilizing.
On a GAAP basis, earnings were $0.03 per share, but non-GAAP earnings were $0.35 per share. Gross margin came in near 56.7%, and EBITDA margins stayed above 20%. The company generated $51.6 million in free cash flow even after capital spending.
Looking ahead, management's fiscal Q3 2026 outlook points to continued margin improvement. Executives reiterated their long-term target of a 40% operating margin.
Wall Street is divided on the stock's near-term outlook. Goldman Sachs rates Microchip a "Buy" with an $88 target. Needham and Stifel maintain "Buy" ratings, recently lifting targets to about $77 and $80, respectively. More cautious firms like Morgan Stanley and Wells Fargo have "Hold" ratings with targets in the high $60s or lower. Mizuho carries an "Outperform" rating with an $83 target.
The consensus from 24 analysts is a "Moderate Buy" rating. The current price is almost at the mean target of $77.43. The Street-high target is $88, giving just 19% potential upside.