Improving Fundamentals but Fully Valued: Maintaining Hold on Microchip Amid Cyclical Snapback and Upcycle Risks

In a report released yesterday, Joseph Moore from Morgan Stanley maintained a Hold rating on Microchip, with a price target of $69.00.

Joseph Moore has given his Hold rating due to a combination of factors that balance improving fundamentals with a valuation that already reflects much of the good news. He highlights that Microchip’s recent guidance raise and stronger-than-usual December quarter, driven by broad-based demand recovery and successful execution of its inventory reduction plan, meaningfully enhance near‑term earnings visibility. He also notes that progress on lowering balance-sheet inventory and increasing factory utilization should steadily reduce the gross margin drag from prior inventory and underutilization charges, supporting a path toward gross margins above 60%.
At the same time, Moore indicates that a substantial portion of this cyclical “snapback” and margin improvement appears to be recognized in the current share price, limiting upside from here. His updated estimates for 2026 earnings move well ahead of consensus, but he sees this partly as a matter of timing rather than a structural step-change. Furthermore, he remains cautious about 2027, where the elongated nature of the present upcycle raises the risk of a sharper subsequent downturn, making longer‑term forecasts less compelling. Taken together, the better outlook but fully valued setup leads him to maintain an Equal Weight (Hold) stance on Microchip’s stock.

In another report released yesterday, Wells Fargo also maintained a Hold rating on the stock with a $68.00 price target.