Microchip: Strong Backlog, Design-Win Momentum, and Margin Recovery Support Reaffirmed Buy Rating

Analyst Christopher Rolland from Susquehanna reiterated a Buy rating on Microchip and keeping the price target at $90.00.

Christopher Rolland has given his Buy rating due to a combination of factors that point to continued operational and financial strength at Microchip. He highlights that the company delivered results roughly in line with expectations but paired them with notably stronger guidance, supported by an unusually robust level of January bookings and a book‑to‑bill ratio well above one in the December quarter. This has produced a significantly larger backlog heading into the March quarter, and management indicates that the current June quarter backlog already exceeds the March comparison, suggesting the potential for another quarter of above-seasonal growth. In addition, Microchip is seeing healthy momentum in areas such as FPGAs, memory, data center exposure, and other product segments that are expected to remain strong even as some one-time licensing benefits roll off.

Rolland also underscores the strategic importance of Microchip’s new PCIe Gen‑6 switch (3nm), where the company has secured three design wins, including a key program expected to drive more than $100 million of revenue in calendar 2027 and marking an important expansion beyond its traditional analog focus. Operationally, Microchip’s distribution inventory appears largely normalized, with sell‑through now exceeding sell‑in and channel inventory days stabilizing, which reduces the risk of further inventory-related headwinds. Gross margins are improving as inventory write-offs and reserve charges trend down toward more normal levels, and management anticipates additional modest margin expansion in the near term, even though underutilization charges will take longer to fully normalize. Taken together with a supportive industry backdrop and a valuation framework that sees upside to his $90 price target (around 10x 2026E EV/sales versus a defined downside scenario), these elements underpin Rolland’s reaffirmed Positive/Buy stance on Microchip shares.

In another report released today, Evercore ISI also maintained a Buy rating on the stock with a $93.00 price target.