Shares of Microchip Technology (MCHP 4.65%) rallied double digits on Tuesday, with the stock rising 10.1% as of 1:25 p.m. EDT.
Microchip management pre-announced preliminary revenue estimates for its December quarter after market close yesterday, with the chipmaker's numbers coming in well ahead of management's initial guidance. Moreover, CEO Steve Sanghi had positive things to say about the March quarter as well.
NASDAQ: MCHP
Key Data Points
A strong recovery from a severe hangover
Microchip experienced a severe hangover following the "boom" of the pandemic. Microchip's products serve a wide variety of industrial businesses, including aerospace and defense, general industrial, automotive, communications, and data centers, among others.
Like many in the specialty and lagging-edge chip space, demand for Microchip's products boomed from the pandemic through 2022, but then evaporated as interest rates rose and customers sold down their excess inventories beginning in 2023 and lasting through mid-2025 . The downturn was so severe that longtime former CEO Steve Sanghi came out of retirement to help the business turn around, implementing a nine-point recovery plan at the beginning of last year.
But it appears Microchip's markets are now recovering after the two-plus-year down-cycle, and that Sanghi's restructuring plan is taking root. In the press release last night, management disclosed it expects roughly $1.185 billion in revenue for the December quarter, well above the initial guidance of $1.109 billion to $1.149 billion given back on Microchip's November earnings call.
Sanghi added:
Our bookings activity was very strong in the December quarter despite a holiday-filled quarter. Our March quarter starting backlog started out much better than that for the December quarter... We are also preparing to ramp our factories in the March quarter, which will begin to lower the amount of our under-utilization charges... We look forward to a very good calendar year 2026, as we reap the benefits from the success of our nine-point recovery plan.
Image source: Getty Images.
Microchip has lagged the sector, but could be set up for outperformance
Microchip and its peers in the industrial, analog, and power chips space have lagged behind their leading-edge peers, as AI demand for leading-edge nodes has dominated while investment in industrial, automotive, consumer, and communications applications has lagged.
However, not only are those industrial-focused sectors now recovering from a downturn, but the AI data center buildout is now requiring more of these kinds of specialty chips, especially power chips, thanks to the tremendous electricity requirements and the associated infrastructure needed to serve the AI buildout.
Still well off their all-time highs, these types of semiconductor stocks could be in for outperformance in 2026.
