Lattice Semiconductor Corporation (NASDAQ:LSCC) traded at around $131 on October 7, down 2.59% on the day, though still 82.53% higher over twelve months. Microchip Technology Incorporated (NASDAQ:MCHP) traded near $78 over the same session, up 23.38% across the year.
One of these two pays out nearly three times what it earns, and that is the fact the comparison turns on.
READ ALSO: Is Lam Research, KLA, or Applied Materials the Best Chip Equipment Buy? Jim Cramer Weighs In
The Dividend Nobody Should Read Past:
Microchip’s payout ratio is 267.65%. That means the dividend costs almost three times the company’s trailing earnings, funded from the balance sheet rather than from profit. A 2.33% yield on a $1.82 rate looks ordinary until that figure is read beside it. What makes it payable is cash rather than earnings. Free cash flow was $1.11 billion against $367.20 million of net income.
So the dividend is covered by the cash statement and not by the income statement, which is a distinction that matters in a downturn. Lattice Semiconductor pays nothing at all and keeps its $163.02 million of free cash flow. Billionaire investors hold ten semiconductor stocks. The one ranked first has returned 24% since June.
DON’T MISS: NVIDIA (NVDA) vs. Broadcom (AVGO): Which AI Chip Stock Has the Stronger Moat?
Higher Gross Margin, Lower Operating Margin:
Lattice Semiconductor runs a 69.02% gross margin against 60.19% at Microchip. At the operating line, the ranking reverses completely, at 13.33% against 23.96%. Keeping more of each sale and less of each dollar of revenue means the operating costs are heavier, and in programmable logic they are engineering salaries.
Net margins land at 5.58% against 9.34%, so the reversal survives all the way down. Growth favors the smaller company. Revenue grew 62.20% at Lattice Semiconductor against 38.00%. Earnings growth at Lattice Semiconductor was 564.60% in the most recent quarter, which is a recovery from a very weak comparison rather than a rate.
Free cash flow of $1.11 billion at Microchip against $163.02 million is the scale difference stated in cash. Balance sheets differ in kind rather than degree. Debt-to-equity is 4.84% at Lattice Semiconductor against 83.69% and $5.4 billion of debt.
In January, we ranked ten stocks for high returns. The one we put first has returned almost 30% since.
The Valuation Case:
Sustainability for both rests on industrial and automotive demand, which is the most rate-sensitive end of the chip market. On trailing earnings, both multiples are distorted by weak years, at 545.79 times for Lattice Semiconductor and 120.03 for Microchip.
The forward figures are the usable ones, at 40.75 against 17.02, and on that basis Microchip is less than half the price. Return on equity is 4.93% against 7.19%, so neither company is earning much on the capital inside it yet.
Conclusion:
Microchip is the cheaper stock and runs the better operating business. A 23.96% operating margin against 13.33% and 17.02 times forward earnings against 40.75 is a double advantage. However, its dividend consumes 267.65% of earnings and is covered only by the cash statement, and it carries $5.40 billion of debt against Lattice Semiconductor’s debt-to-equity of 4.84%. Lattice grew revenue 62.20% against 38.00%. The number to watch is Microchip’s payout ratio, because 267.65% is only sustainable while the cash flow holds up.
Market Sentiment:
Lattice Semiconductor Corporation was held by 51 hedge funds with a combined stake value of about $2.02 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 36 hedge fund holders with a cumulative investment value of around $0.61 billion in the previous quarter.
Microchip Technology Incorporated was held by 81 hedge funds with a combined stake value of about $2.42 billion at the end of Q2 2026 in the Insider Monkey database. This is up from 69 hedge fund holders with a cumulative investment value of around $1.59 billion in the previous quarter.
While we acknowledge the risk and potential of LSCC as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than LSCC and that has 10,000% upside potential, check out our report about this cheapest AI stock.
READ NEXT: NVIDIA (NVDA) vs. Broadcom (AVGO): Which AI Chip Stock Has the Stronger Moat? and Is Lam Research, KLA, or Applied Materials the Best Chip Equipment Buy? Jim Cramer Weighs In
This article is originally published at Insider Monkey.
Hedge Fund Resource Center