Microchip stock is trading at a key support level and has spent most of December testing it, without breaking it. This is despite tax loss harvesters targeting the stock to reduce their tax bill. We believe the company’s stock has fallen too low and there is potential for a short rally.
Microchip Technology Inc. (NASDAQ:MCHP) is a leading corporation specializing in manufacturing embedded control solutions that enable functionality and enhance the performance of multiple electronic devices. The company offers a wide range of innovative and high-performance products used in several industries, from automotive and consumer electronics to aerospace.
Microcontrollers represent its main product category and contribute 56% to the company’s total revenue. These compact circuits integrate a CPU, RAM and Flash memory, and programmable input/output peripherals, to control devices and processes. This also makes them ideal for use in robotics.
Its interface and analog products are designed to process continuous signals, including power management devices and data converters. This category generates 26.4% of total revenue. The company also manufactures serial EEPROMs and Flash memories, products that are capable of storing and retrieving data without being connected to a power source. The sales of these products add approximately 17.6% to total revenue.
The company serves around 123,000 customers, with 60% of its revenue coming from the industrial and automotive sectors. Asia is the largest market for Microchip Technology, generating 45% of total revenue, while the Americas contribute about 30%. The remaining portion of revenue comes from European markets.
Microchip stock has had a horrible year, down 36%. A 19% decline in December might have been triggered by sellers trying to save on their tax bill. Once that selling subsides, the stock will breathe easier. Without the selling pressure, an improving macro situation may attract investors to the stock. Some thought a cyclical bottom was just around the corner 6 months ago. They were proven wrong but in an easing monetary policy, that bet will have a better chance of proving true.
We saw with Micron that memory chips were still struggling to sell. Apart from AI and autonomy-driven demand, there isn’t much to look forward to for semiconductor companies. However, Microchip is well-positioned to benefit from the robotics revolution that is just around the corner. As companies realize spending on AI infrastructure can only bring so much benefit, robotics will be the next wave of spending. Microchip’s low-power microcontrollers and flexible FPGAs used in robotics applications will come in handy.
We believe the turnaround is possible and may well happen within the next 6 months, even if the company’s fundamentals do not improve drastically. The improving macroeconomic environment and a robotics revolution could drive the stock price up, giving traders a good rally to profit from.
Microchip Technology Inc. (NASDAQ:MCHP) is not on our latest list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 37 hedge fund portfolios held MCHP at the end of the third quarter which was 46 in the previous quarter. While we acknowledge the potential of MCHP as a leading AI investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as MCHP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
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