1. Microchip Technology Incorporated (NASDAQ:MCHP)
Number of Hedge Fund Holders In Q3 2024: 37
Microchip Technology Incorporated (NASDAQ:MCHP) is a computer hardware company that sells products such as signal processors and microcontrollers. These products provide it with exposure to the data center market, but despite this fact, the shares are down 33.7% year to date. This is because Microchip Technology Incorporated (NASDAQ:MCHP) serves the needs of the broader information technology industry Consequently, while demand for products used in AI data centers has soared, other IT sectors have lagged which has led to an inventory buildup. The buildup means that Microchip Technology Incorporated (NASDAQ:MCHP)’s fate depends on the rate at which its customers digest their inventory. Additionally, as of Q2 2024, 21.9% of the firm’s revenue came from Europe and marked a 51.3% annual drop due to the region’s persistent economic problems. These factors as a whole mean that Microchip Technology Incorporated (NASDAQ:MCHP) has to rely on several cylinders firing before it can create tailwinds.
Microchip Technology Incorporated (NASDAQ:MCHP)’s management commented on its inventory situation during the Q2 2025 earnings call. Here is what they said:
“At the midpoint of our December 2024 quarter guidance, we would expect both inventory dollars and days to increase. We also continue to invest in building inventory for long-lived high margin products whose manufacturing capacity is being end of life by our supply chain partners and these last time buys represented 18 days of inventory at the end of the September quarter. Inventory at our distributors in the September quarter was at 40 days, which was down three days from the prior quarter’s level. Distribution took their inventory holdings in the September quarter down as distribution sell-through was about $95 million higher than distribution sell-in. Our cash flow from operating activities was $43.6 million in the September quarter and was negatively impacted by the timing of interest and tax payments, including the transition tax payment that is paid annually and was part of the 2017 Tax Cuts and Jobs Act.”
MCHP is a tech stock Roth MKM is worried about. While we acknowledge the potential of MCHP 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 timeframe. If you are looking for an AI stock that is more promising than MCHP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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