Microchip Stock Up, Factory Upgrade Underway

Dec 11, 2023

Chipmaker Microchip Technology (MCHP) is a leader in the emerging Internet of Things (IoT) market. It's recently made a key executive change and is moving full speed ahead with a major chip capacity expansion. On Wednesday, the Relative Strength (RS) Rating for Microchip stock jumped to a higher percentile, rising from 63 to 72.

The upgraded 72 RS Rating puts Microchip stock among the top 28% of companies for price performance this past year. It's a welcome improvement but the Chandler, Ariz.-based company has a ways to go to get into the top tier. Research shows that the stocks that go on to make the biggest gains typically have an 80 or better RS Rating when they launch their largest climbs. However, Microchip's other key ratings make it one to watch.

Microchip makes a variety of types of chips used in nearly every electronic device. Among them are controllers, flash memory chips, and mixed signal (incorporates both analog and digital circuitry) chips and interface devices. Its chips help connect devices in the emerging IoT market. Because they are ubiquitous, they will also likely have a big role in the rollout of artificial intelligence (AI) systems as well. Those initiatives could boost Microchip stock.

On April 20, Microchip named Rich Simoncic to executive vice president. He was formerly a senior vice president. The company said Simoncic, a 34-year Microchip veteran, founded the company's analog business in 1998. CEO Ganesh Moorthy said in the company news release that "Rich will continue to manage all of Microchip's Analog business units. In addition, he will play a larger role assisting me with several corporate initiatives," including strategic planning and investor relations.

Additionally, Microchip said in March that its $800 million initiative to triple chip production at its Gresham, Ore. facility was near the halfway mark.

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Microchip Technology has an excellent 95 EPS Rating out of 99. It also boasts an A SMR Rating (sales + profit margin + return on equity) reflecting strong fundamentals. Its C- Accumulation/Distribution Rating on an A+ to E scale shows that fund managers are still on the sidelines on this stock. Microchip stock has a decent 89 Composite Rating though, showing it's performing well overall.

Microchip stock is working on a consolidation pattern with an 87.86 entry. See if it can break out in volume at least 40% higher than normal. It recently completed a long cup pattern that began in December 2021 but it hasn't broken out yet. Wednesday afternoon it traded up about 4% to above 80 despite the tech-heavy Nasdaq being down sharply.

Microchip reported double-digit profit growth and sales growth every quarter this past year. On May 4, the company reported that fiscal fourth quarter earnings grew 21% to $1.64 per share as its revenue also rose 21%, to $2.23 billion.

Microchip stock holds the No. 3 rank among its peers in the Electronics-Semiconductor Manufacturing industry group. Top chip foundry Taiwan Semiconductor (TSM) and Swiss-based STMicroelectronics (STM) are also among the group's highest-rated stocks.

As you try to find the best stocks to buy and watch, one metric to keep in mind is stock relative price strength.

IBD's unique Relative Strength Rating tracks technical performance by showing how a stock's price movement over the last 52 weeks compares to that of the other stocks in our database

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