30 Best and Worst Data Center Stocks

3. Microchip Technology, Inc. (NASDAQ:MCHP)

Upside Potential: 52%

Number of hedge funds: 37

Microchip Technology, Inc. (NASDAQ:MCHP) manufactures embedded control solutions, including microcontrollers, mixed-signal, analog, and Flash-IP integrated circuits. The company earns approximately 18%-20% of its revenue from the Data Center & Computing end market. It offers a comprehensive portfolio of data center solutions that improve server storage performance, reliability, and security while also reducing overall power consumption. These solutions include Flashtec NVMe controllers, 24G SAS technology-based SmartRoc products for storage, and PCIe Gen 5 technology products for high bandwidth and flexibility in data centers.

Microchip Technology, Inc. (NASDAQ:MCHP) will report its next quarter results on February 6th. However, one of its closest peers has already reported weaker quarterly results and provided softer next-quarter guidance amid rising inventory levels and softening demand in critical end markets. This has made investors cautious about Microchip Technology, Inc. (NASDAQ:MCHP) as well. Its share price has fallen around 35% in the past year, and most analysts have revised their price targets lower in recent updates. Given the cyclical nature of the semiconductor industry, demand/supply volatility is part of the cycle and can impact near-term investor sentiment.

At the start of December 2024, Microchip Technology, Inc. (NASDAQ:MCHP) announced a restructuring plan and updated its guidance in light of the excess inventory and overcapacity situation. While they now expect December 2024 quarter revenue to be at the lower end of their guidance, they also announced the closure of their Tempe wafer fabrication facility (fab) by September 2025. Although this will result in $90 million in annual cash savings, the development is overall negative for the near-term outlook due to the pressure on the business and the time it takes to ramp up capacity during recovery periods. Commenting on the restructuring, the company’s CEO, Mr. Steve Sanghi, stated:

“I want to assure investors of my confidence in the long-term growth and profitability of Microchip. Our design-in momentum continues to remain strong, driven by our Total System Solutions strategy and key market megatrends. The fab restructuring is a big step in right-sizing our manufacturing footprint, and we will continue to evaluate any further actions that are required to position Microchip for outsized growth and financial performance.”